Spread Bet 24 Oct 2008
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For today's update see Spread Betting Daily.
The Daily Update from Anthony Grech - Research Analyst, IG Index.
Spread Betting 24 Oct 08
A bad day for Asian markets crimped investor sentiment in the West this morning, following a slew of dismal results. Also adding to the panic was the release of worse-than-expected Gross Domestic Product (GDP) figures in Britain.
'The panic levels are now quite unseen,' said Christian Gattiker, an equity research analyst at Bank Julius Baer & Co. 'It's difficult to have any words for this situation right now.' [1]
In today's Asian trading session, technology bellwether Sony Corp slashed its operating profit forecasts by around 60%, due to a weaker global economy and stronger yen. Sony plunged to its lowest level since May 1995, falling 12.4% to Y2,010.
Samsung Electronics was also among the casualties, falling 9% to Won448,500 after announcing that its third-quarter profits sank 44%.
Companies from all over the world are starting to feel the brunt of the slowdown - just a few weeks ago it was mainly the US and Europe, but now it's Asia and emerging markets as well. As soon as you think you have seen worst, things just seem to get worse.
Japan's Nikkei 225 index slid 811.9 points (-9.6%) to a five-and-a-half-year low of 7649.08 while Hong Kong's benchmark Hang Seng index plunged 1142.11 points (-8.3%) to 12618.38.
In Britain, London's blue-chip FTSE 100 Index appeared to be heading in the same direction, down 251.61 points (-6.15%) to 3836.22 after a worse-than-anticipated drop in the country's third-quarter Gross Domestic Product (GDP) figures confirmed that the economy is entering a recession.
The broader FTSE 250 was also deep in the red, down 395.4 points (-6.45%) to 5733.255. European bourses also felt the brunt, with the German DAX 30 down by 399.72 points (-7.52%) to 4179.98 and the French CAC 40 236.39 points (-7.14%) lower at 3074.48.
Official government figures released this morning revealed that the UK economy contracted by 0.5% from the second quarter, the first contraction since 1992 and inevitably marking the beginning of a recession. A majority of the economists surveyed by Bloomberg had forecasted a 0.2% drop. On the year, GDP was up by 0.3%, also worse than consensus predictions.
'We're looking at a recession now, but the big uncertainty is the depth of the effects of these unprecedented financial market events,' said Matthew Sharratt, an economist at Bank of America. 'A more severe credit crunch across the real economy will make all the difference in whether we have two to three quarters of a mild recession or something more severe.' [2]
A breakdown of the data reveals that the services industries, which accounts for 75% of Britain's economic growth, shrank 0.4% in the third quarter. Manufacturing production fell 1% and construction dropped 0.8%.
Earlier this week, Prime Minister Gordon Brown and Bank of England Governor Mervyn King had already prepared us for this news, warning that the economy was likely to enter recession. The data released today is also likely to entice another 50-basis-point cut in British interest rates, in my opinion.
In equity markets, the banking sector was hammered, with Barclays, HSBC and Standard Chartered all down by over 10% to 195.2p, 722.75p and 810p respectively. HBOS plunged 12.77% to 63.5p while losses in Lloyds TSB and RBS were less pronounced, with the former down 4% to 165p and the latter down 7.16% to 62.2p.
The heavy-weight mining sector was also pounded, with losses in the sector ranging between 4% and 11%. Oil and gas producers were also badly hit, incurring losses ranging between 6% and 9% following yesterday's rally.
Crude Oil suffered too, with December Brent down 5.3% to $62.44 per barrel and December Light Sweet crude down 5% to $64.53 per barrel.
The wrath is also likely to be felt in the US when Wall Street opens this afternoon. In fact, December Dow futures were down 550 points and December S&P 500 shed 83.5 points.
Last night, Alan Greenspan, the former Federal Reserve chairman, warned Congress that the global financial crisis is a 'once-in-a-century credit tsunami' and foresaw further layoffs. His comments came after Goldman Sachs announced it was making 3,260 workers redundant (10% of its global work force) and General Motors said it will begin involuntary layoffs.
[1] Source: Bloomberg News (24 October 2008)
[2] Source: Bloomberg News (24 October 2008)
The above comments do not constitute investment advice and neither IG Index nor SpreadBets.org.uk accept any responsibility for any use that may be made of them.
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"Spread Bet 24 Oct 2008" written by AG, last updated 24-Oct-2008
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