The Star Online: Business
The Star Online: Business |
- Dow falls 512 in steepest decline since '08 crisis(update)
- Democrats warn jobless could derail US recovery
- Italy probing rating agencies
| Dow falls 512 in steepest decline since '08 crisis(update) Posted: 04 Aug 2011 06:44 PM PDT NEW YORK: Gripped by fear of a new recession, the stock market suffered its worst day Thursday since the financial crisis in the fall of 2008. The Dow Jones industrial average fell more than 500 points, its ninth-steepest decline. The sell-off wiped out the Dow's remaining gains for 2011. It put the Dow and broader stock indexes into what investors call a correction - down 10 percent from their highs in the spring. "We are continuing to be bombarded by worries about the global economy," said Bill Stone, the chief investment strategist for PNC Financial. Across the financial markets, the day was reminiscent of the wild swings that defined the financial crisis in September and October three years ago. Gold prices briefly hit a record high. Oil fell even more than stocks - 6 percent, or $5.30 a barrel. And frightened investors were so desperate to get into some government bonds that they were willing accept almost no return on their money. It was the most alarming day yet in the almost uninterrupted selling that has swept Wall Street for two weeks. The Dow has lost more than 1,300 points, or 10.5 percent. By one broad measure kept by Dow Jones, almost $1.9 trillion in market value has disappeared. For the day, the Dow closed down 512.76 points, at 11,383.68. It was the steepest point decline since Dec. 1, 2008. Thursday's decline was the ninth-worst by points for the Dow. In percentage terms, the decline of 4.3 percent does not rank among the worst. On Black Monday in 1987, for example, the Dow fell 22 percent. Two weeks ago, investors appeared worried about the deadlocked negotiations in Washington over raising the ceiling on government debt. As soon as the ceiling was raised, investors focused on the economy, and the selling accelerated. On Thursday, growing fear about the weakening U.S. economy was joined by concern in Europe that the troubled economies of Italy and Spain might need help from the European Union. The European Union has already given financial assistance to Greece and Ireland, two countries that have struggled to pay their debts. A financial rescue package for Italy or Spain might be more than the group of countries can handle. Traders also unloaded stocks before Friday's release of the government's unemployment report for July, which is expected to show weak job growth and perhaps a rise in the unemployment rate, which is 9.2 percent. Together, they produced "a perfect storm of selling," said Ryan Larson, head of U.S. equity trading for RBC Global Asset Management. Until a week ago, Wall Street had mostly convinced itself that the U.S. economy would improve in the second half of the year. Gas prices were falling, and Japanese factories were resuming production after disruptions from the March earthquake. Then one report after another began to show that the economy was much weaker than first thought. Manufacturing is barely growing. The service sector, which covers about 90 percent of the American work force, is growing at the slowest rate in a year and a half. People spent less in June than in May, the first decline since September 2009. And the overall economy is expanding at the slowest pace since the end of the Great Recession. It grew at an annual rate of just 0.8 percent for the first six months of this year, raising the risk of another recession. In an indication of how frightened investors are, Bank of New York Mellon said it would start charging large investors to hold their cash because they are depositing so much. The bank's clients include pension funds and large investment houses that are selling stock and need to deposit the proceeds. Mark Luschini, chief investment strategist for Janney Montgomery Scott, an investment firm in Philadelphia, said his clients saw the move from stocks into cash as "a parking lot to sort things out." "With the scars of 2008 still fresh," he said, "some clients don't want to miss the chance to pre-empt further damage should it come." Wells Fargo Advisers, a financial management company in St. Louis, said clients were more nervous. "I wouldn't say they're totally panicking. But obviously nerves are rattled," said Scott Marcouiller, chief technical market strategist there. "And I think that is simply because of the speed of the decline." Other market indicators reinforced the risk-averse mood. Gold, which is seen as a safe investment when the stock market is turbulent, set a record price, $1,684.90 an ounce, before falling to finish the day at $1,659. Adjusted for inflation, gold is still far below the record reached in 1980. The yield on the 10-year Treasury note fell to 2.42 percent, its lowest of the year, and the yield on the 2-year Treasury note hit its lowest ever, 0.265 percent. Bond yields fall when demand for bonds increases. The yield on the one-month Treasury bill fell to almost nothing - 0.008 percent. Investors were willing to accept paltry returns in exchange for holding investments they believed to be stable. The sell-off was broad. All 10 industry groups in the Standard & Poor's 500 index fell. Energy companies lost almost 7 percent, materials companies were down 6.6 percent, and industrial companies lost more than 5 percent. For a time, Kraft Foods was the only stock to rise among the 30 that make up the Dow industrials. Kraft announced Thursday that it would split in two, with one company focusing on snacks and the other groceries. But the selling eventually dragged Kraft under, too, and its stock finished down 52 cents, at $33.78. Steep stock market losses like the ones of the past two weeks can be self-reinforcing. A drop in stocks erodes household wealth and raises doubts about the economic outlook. The result can be what economists call a vicious cycle. Stock losses take a toll on consumer confidence and make people more reluctant to spend money. Consumer spending makes up 70 percent of economic output in the United States. Kevin Cook, senior stock strategist for Zacks Investment Research in Chicago, said investors' worst fears probably won't come true. "This is not 2008 again," he said. "We don't have a liquidity crisis, we don't have a credit crisis - this is just profit taking." Cook said he believes the S&P 500, which closed Thursday at 1,200.07, will trade between 1,150 and 1,250 between now and Oct. 1, at least until investors have enough information to determine whether the economy is in recession again. Even taking into account the recent declines, stocks are still considered to be in an impressive bull market that began March 9, 2009, when the market reached its recession low. The Dow closed that day at 6,547. Since then, it is up about 74 percent. One year ago, the Dow closed at 10,680. About a month later, the stock market began a rally that took the Dow almost to 13,000. The catalyst was an announcement by Federal Reserve Chairman Ben Bernanke that the Fed was preparing to launch a program to buy $600 billion in government bonds to keep interest rates low and help stocks rally. The sell-off now comes at a time when corporate profits are growing. For the S&P 500, a measure called the forward price-to-earnings ratio has fallen to about 12, well below its long-term average of 16. That means that investors who buy now are paying less for each dollar in profits. Based on what an investor now pays for corporate profits, stocks are now trading at their lowest levels in 20 years, said Tim Courtney, chief investment officer of Burns Advisory Group in Oklahoma City. But few companies were spared in the sell-off Thursday. Just three of the 500 stocks in the S&P 500 moved higher. General Motors fell 4 percent despite beating analyst estimates for its quarterly earnings. - AP Here's a look at the Dow's 10 worst days since 1899: By percent decline: - Oct. 19, 1987: 22.6 percent, or 508 points - Oct. 28, 1929: 12.8 percent, or 38 points - Oct. 29, 1929: 11.7 percent, or 31 points - Nov. 6, 1929: 9.9 percent, or 26 points - Dec. 18, 1899: 8.7 percent, or 6 points - Aug. 12, 1932: 8.4 percent, or 6 points - March 14, 1907: 8.3 percent, or 7 points - Oct. 26, 1987: 8 percent, or 157 points - Oct. 15, 2008: 7.9 percent, or 733 points - July 21, 1933: 7.8 percent, or 8 points By points: - Sept. 29, 2008: 778 points, or 7 percent - Oct. 15, 2008: 733 points, or 7.9 percent - Sept. 17, 2001: 685 points, or 7.1 percent - Dec. 1, 2008: 680 points, or 7.7 percent - Oct. 9, 2008: 679 points, or 7.3 percent - April 14, 2000: 618 points, or 5.7 percent - Oct. 27, 1997: 554 points, or 7.2 percent - Oct. 22, 2008: 514 points, or 5.7 percent - Aug. 4, 2011: 513 points, or 4.3 percent - Aug. 31, 1998: 513 points, or 6.4 percent Source: Dow Jones Indexes, a division of CME Group Inc. Meanwhile AP repored from London: Fears that the U.S. economy may be heading back into recession and that Italy and Spain won't be able to deal with their debts battered stocks, the euro and oil prices Thursday. The selling pressure in stock markets accentuated through the day as investors fretted over the U.S. economic recovery, a day before crucial non-farm payrolls for July, which often set the tone in markets for a week or two after their release. Investors, already fidgety after the protracted U.S. debt deliberations, and worries that Italy and Spain are getting deeply embroiled in Europe's debt crisis, searched for assets considered safer, such as gold. "$2.3 trillion of value wiped off equities worldwide over a handful of days and the cost is still rising," said Howard Wheeldon, senior strategist at BGC Partners. In Europe, most markets shed more than 3 percent of their value. Of the major markets, France's CAC-40 tumbled 3.9 percent to 3,320.35. Germany's DAX tumbled 3.4 percent to 6,414.76. Britain's FTSE 100 index of leading British shares ended 3.4 percent lower at 5,393.14. Among major stock markets, only Tokyo's Nikkei 225 index actually traded up 0.2 percent to 9,659.18 after the Bank of Japan intervened to sell the yen and buy the dollar. That drove the dollar above 80 yen Thursday for a brief while from 76.99 late Wednesday. By late afternoon London, the dollar was 2.4 percent firmer at 78.97 yen. Japanese Finance Minister Yoshihiko Noda said financial authorities decided to intervene in the currency markets because the strong yen could hurt the country's export-dependent economy and slow its efforts to recover from the March 11 earthquake and tsunami. The dollar had fallen as low as 76.29 yen on Monday. It hit a record post-World War II low of 76.25 yen in the days following the March 11 earthquake and tsunami. A strong yen is painful for Japan because it reduces the value of foreign earnings for companies like Toyota Motor Corp. and Nintendo Co. and makes Japanese goods more expensive in overseas markets. The intervention was coupled with monetary policy easing by the central bank's board. The bank expanded an asset purchase program to 50 trillion yen ($638.3 billion) from 40 trillion yen. It also kept its key interest rate in a range of zero to 0.1 percent. Japan's moves came only a day after the Swiss National Bank intervened to slow a rise in the Swiss franc, another currency perceived as a save-haven at a time investors are fleeing risky assets such as shaky European government bonds. Investors have been looking for safe havens to park their cash after figures earlier this week pointed to a dangerous slowdown in the U.S. economy at a time when Europe's debt problems appear to be engulfing big economies like Italy and Spain. Yields on Spanish and Italian bonds stabilized Thursday, still much higher than just a month ago but further away from the 7-percent level generally seen as a nation's breaking point. The yield, or interest rate, of Italian 10-year bonds was 6.19 percent, while its Spanish equivalents were at 6.21 percent. The rise in the yields of both Italian and Spanish bonds came despite indications that the European Central Bank intervened in the markets to prop up their bonds. Questions about the bond-buying program, left unused for four months, dominated Trichet's news conference following Thursday's widely anticipated decision to leave the ECB's main interest rate unchanged at 1.5 percent. Trichet left open the possibility of reopening the bond-purchase program but appeared determined to keep market traders off-balance about the bank's actual intentions. "I never said it was dormant," he said, adding that the bank would reveal any purchases at the regular Monday disclosure. "You will see what we do," he said. "If we intervene, we intervene, and we will publish the amount of what we have done." Elsewhere in Asia, Hong Kong's Hang Seng shed 0.5 percent to 21,884.74 while China's Shanghai Composite Index advanced 0.2 percent to 2,684.04. South Korea's benchmark Kospi dropped 2.3 percent to 2,018.47. Worries over the global recovery hit oil prices hard too. Benchmark oil for September delivery was down $3.37 at $88.56 a barrel in electronic trading on the New York Mercantile Exchange. In Kuala Lumpur Bernama reported that Bursa Malaysia were sharply lower this morning(Friday) after the massive sell-off of shares in Asian markets and overnight Wall Street, dealers said. Dealers said investors fled equities market in favour of safe haven assets in view of the wide spreading European debt crisis and gloomy global economic outlook. As at 9.12 am, the benchmark FBM KLCI erased 31.73 points to 1,515.16 after opening 16.95 points lower at 1,529.94. The Finance Index wiped out 347.59 points to 14,413.26, Plantation Index slipped 162.21 points to 7,576.24 and Industrial Index decreased 51.74 points to 2,753.31. The FBM Emas Index gave up 226.271 points to 10,453.88, FBM Ace Index fell 143.51 points to 4,072.98 and FBM Mid 70 Index eroded 267.31 points to 11,581.19. Losers outnumbered gainers 580 to 12 with 56 counters unchanged, 851 untraded and 35 others suspended. Turnover stood at 144.7 million shares worth RM175 million. Actives, Karambunai Corp slipped half-a-sen to 16.5 sen, Sanichi Technology eased 1.5 sen to nine sen, Axiata Group fell two sen to RM5.05 and Malaysia Building Society-warrant 11/16 dropped 4.5 sen to 75.5 sen. Heavyweights, Maybank lost 18 sen to RM8.67, CIMB dipped 13 sen to RM8.27, Petronas Chemicals slipped 20 sen to RM6.71 and Petronas Gas fell 40 sen to RM12.94. - AP/Bernama
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| Democrats warn jobless could derail US recovery Posted: 04 Aug 2011 06:29 PM PDT WASHINGTON: U.S. unemployment remains stubbornly high at just over 9 percent, but it's the alarming number of long-term jobless people that is causing fresh concern for Democratic lawmakers. About 42 percent of the nation's 14.1 million unemployed have been out of work for at least six months, and nearly one in three has been jobless more than a year. Those numbers - still near record levels set last year - could be a sign of chronic labor market problems that could derail any lasting economic recovery, according to a report Thursday from Congress' Joint Economic Committee. Many of these workers suffer because their skill sets no longer fit the needs of employers, the report found. It suggests more investment in job search and training programs would help the long-term unemployed find new work. The group includes disproportionately high rates for workers 55 and older, those with only a high school degree, workers in construction or manufacturing, and African American workers. "This report makes clear that policymakers will need to simultaneously spur job creation while also investing in education and training programs that can prepare workers for new employment opportunities," said Democratic Sen. Bob Casey, the committee's chairman. But while Democrats, labor unions and even business groups like the U.S. Chamber of Commerce have called on the government to invest more money to stimulate job growth, Republicans intent on cutting federal spending have resisted such calls. "The problem that we must address is that our businesses simply aren't hiring," said Texas Rep. Kevin Brady, the top Republican on the Committee. He said the administration should foster an environment that encourages business to invest, which would lead to the creation of new jobs. The report comes a day before the government releases July employment figures. The unemployment rate rose to 9.2 percent last month - the highest level of the year - and is expected to remain unchanged. Democrats say there's is a growing urgency to the problem of persistent long-term unemployment, as people out of work are less likely to find a job the longer they are unemployed. Among those unemployed for longer than one year, only 8.7 percent were able to find work, according to recent 12-month statistics from the Bureau of Labor statistics. Long-term unemployment is currently at 4.1 percent of the labor force, down only slightly from a record 4.4 percent in May 2010. Before the recession began in 2007, it stood at less than 1 percent. "Scars on the labor force caused by a severe recession can cause a permanent rise in unemployment," the report said. "Investing in work force training programs can help unemployed workers improve their job prospects." - AP Latest business news from AP-Wire Full Feed Generated by Get Full RSS, sponsored by Used Car Search. |
| Posted: 04 Aug 2011 06:28 PM PDT ROME: Italian prosecutors are investigating two leading credit rating agencies after consumer groups complained about turbulence on financial markets, officials said Thursday. Recent reports and rating decisions issued by Moody's and Standard & Poors were tantamount to "failing" Italy even before the government could complete austerity moves meant to boost the nation's reputation in the markets "and while the markets were open," prosecutor Carlo Maria Capristo told Italian broadcaster Sky TG24 TV. Investigators seized documents in offices of both firms, prosecutors said during a televised news conference. The probe began months ago, spurred by contentions from Italian consumer groups that unjustifiably pessimistic rating reports were causing Italian stocks to tank. Prosecutors must begin a probe after such complaints. The two agencies had issued warnings of possible downgrades amid fears that the eurozone's third-largest economy could be caught up in the European debt crisis. Instead, a third agency, Fitch Ratings, said last month that Italy's package of austerity measures, approved by Parliament in July, would help stabilize the government's finances and its credit rating. Three analysts from S&P and one from Moody's are under investigation, Italian news agency ANSA reported. The ratings agencies "have lost all credibility," Elio Lannutti, head of the Adusbef consumer group told Sky TV at the news conference. Moody's said in a statement it is cooperating with authorities. "Moody's takes its responsibilities surrounding the dissemination of market sensitive information very seriously," it added. Standard & Poors said the accusations were unfounded. "S&P considers the allegations being investigated are without any merit. We will vigorously defend our actions, our reputation and that of our analysts," said a statement from the ratings agency. Calls to offices of Trani prosecutors and police went unanswered Thursday evening. The Italian stock market watchdog, Consob, declined to comment on the investigation. Thursday saw strong turbulence on Italy's main stock exchange in Milan, where the FTSE MIB benchmark index ended down 5.16 percent amid fears that the eurozone's debt crisis might eventually spread to Italy. Trading had begun with a rise, of 1.2 percent, a day after Premier Silvio Berlusconi - in a much awaited speech to lawmakers - proclaimed Italy's economic foundations "solid." He also maintained that the recently approved austerity measures were sufficient to help rein in public debt. - AP Latest business news from AP-Wire Full Feed Generated by Get Full RSS, sponsored by Used Car Search. |
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