Back to reality for Barack ,Election euphoria over; stocks slump anew

http://newsinfo.inquirer.net/inquirerheadlines/nation/view/20081107-170695/Back-to-reality-for-Barack

Philippine Daily Inquirer
First Posted 01:10:00 11/0
Close this LONDON—Market euphoria over Barack Obama’s historic election as America’s first black president quickly dissipated on Thursday, as more jobs vanished and stock markets slumped in the face of the world’s relentless economic crisis.

After a sharp rise on election day, markets in the United States, Asia and Europe tumbled as investors shifted their focus on grim economic data—bigger-than-expected US job losses, sharp contraction in the world’s services sector, steep declines in house prices and a manufacturing retreat in Britain.

A series of dire profit warnings from major Asian companies such as Japan’s Toyota Motor Corp. and Isuzu Motors Ltd. and Hong Kong carrier Cathay Pacific Airways Ltd. also yanked markets back to the reality of depressed economic conditions.

“We’re coming back to reality . . . despite the euphoria over the election, the world’s economy hasn’t changed,” said Francis Lun, general manager of Fulbright Securities in Hong Kong.

Japan’s Nikkei stock average retreated 6.5 percent, Hong Kong’s Hang Seng Index lost 7.1 percent and South Korea’s benchmark Kospi index broke a five-session winning streak to dive 7.6 percent. Markets in Singapore, Australia and mainland China also dropped sharply.


Tracking losses in Asia, European stocks got off to a weak start, with benchmarks in Germany, Britain and France down about 3 percent. Russia’s MICEX tumbled 8 percent, prompting the bourse to announce that trade would be suspended for an hour.

The pullback was in line with big losses on Wall Street, where investor optimism surrounding Obama’s election evaporated in the face of gloomy economic news. The Dow Jones industrial average, S&P 500 index and Nasdaq composite index all plunged 5 percent.

US stock index futures were down, suggesting Wall Street would open lower on Thursday. Dow futures were down 1.1 percent, while S&P futures were down 1.4 percent.

Bleak warnings

A day after his landslide victory, President-elect Obama heard not only a chorus of congratulations from around the world but also bleak warnings about the creeping global recession that is certain to crowd the top of his agenda, along with the wars in Iraq and Afghanistan.

World leaders and investors are looking forward to Obama’s appointment of the key members of his economic team, particularly the new US treasury secretary who will oversee the $700-billion fund that will be used to buy distressed assets and shore up wobbly financial institutions.

“Even though there’s a lot of enthusiasm and a lot of excitement around the new president, I think it’s going to be very difficult for anything quick to happen,” said Dean Barber, president of Barber Financial Group in Kansas City.

“Today we just had reality set in that . . . we’re still losing jobs and we still have consumer spending at very low levels and we are heading into a holiday season that looks like it could be one of the worst,” Barber said.

Data released on Wednesday showed US private employers cut a larger-than-expected 157,000 jobs in October, presaging another whopping job-loss figure on Friday when the labor department is scheduled to issue the more market-sensitive non-farm payrolls data.

The Institute for Supply Management also reported that the service sector—the largest component of America’s gross domestic product—contracted sharply in October as new orders and employment fell.

A survey also showed global services activity last month hit its lowest since 2001. In Britain, manufacturing suffered its longest decline since 1980.

In another sign that no corner of the world has been spared the pain, the International Monetary Fund (IMF) approved a hefty $16.5-billion loan for Ukraine.

There were also reports of more job losses from big companies.

Sources said investment bank Goldman Sachs planned to lay off another 3,200 employees. Rupert Murdoch’s News Corp.—which owns a TV network, movie studios and The Wall Street Journal—said it would carry out cost-cutting measures across all its businesses.

Adding to the gloom were dismal corporate reports, which sparked sell-offs in stock markets.

In Tokyo, Toyota fell 10.3 percent after it slashed its earnings forecast for the full year to less than a third of what it was the previous year. The world’s biggest automaker is the latest casualty in an industry hit hard by the slump.

Isuzu shares tumbled 20.7 percent after the truck maker announced a larger-than-expected cut to full-year earnings estimates the previous day.

Negative indicators

Negative economic indicators out of the United States weighed heavily on shares of electronics companies in Asia. Japan’s Panasonic Corp. lost 8.5 percent, while South Korea’s Samsung Electronics Co. declined 4.6 percent.

Hong Kong’s Cathay Pacific plummeted over 14 percent after the carrier, Asia’s third largest airline, warned that full-year results would be “disappointing” due to slumping revenue and losses from hedging its jet fuel costs.

Amid fears that a global recession will undercut energy demand, world crude prices sank further.

Light, sweet crude for December delivery was down 70 cents to $64.60 a barrel in electronic trading on the New York Mercantile Exchange by late afternoon in Singapore. The contract settled at $65.30 overnight. Oil prices have fallen by about 56 percent since peaking at $147.27 a barrel in mid-July.

Pressure to cut rates

Amid mounting evidence the world economy is slowing, the European Central Bank (ECB) and the Bank of England have come under pressure to slash borrowing costs by a record margin later on Thursday.

The ECB, staring at the first euro zone-wide recession since its inception in 1999, is seen certain to cut its benchmark rate by half a point to a two-year low of 3.25 percent. But interest rate traders are pricing in a cut of 75 basis points.

A half-point reduction would match the Oct. 8 emergency cut made in unison with the US Federal Reserve and other major central banks. A larger reduction would be the ECB’s biggest ever.

There is also mounting pressure on the Bank of England’s Monetary Policy Committee (MPC) to act aggressively with financial markets factoring in a 75-basis-point cut.

Some economists are even calling for a full percentage point cut or more, which would be the MPC’s most dramatic move since it was set up 11 years ago.

The US Federal Reserve and central banks in Japan and China cut rates last week to shield their economies from the crisis that began when a US housing boom soured 15 months ago. Australia kicked off this week’s round with a hefty 75 basis point cut.

Hopes raised

Obama’s victory, along with the Democrats’ tighter grip on Congress, has raised hopes of a speedier injection of billions of dollars aimed at shoring up the struggling US economy.

But the first black US president has to wait until Jan. 20 next year to move into the White House and prove his mettle in tackling the worst economic crisis since the 1930s.

For now, the onus is on the current Bush administration and central banks and governments elsewhere to act.

A senior official said President George W. Bush would urge leaders of the world’s 20 major economies at a Nov. 15 summit in Washington not to use the global economic crisis as an excuse to erect trade barriers and stifle markets.

Pacific Rim officials, who gathered in Peru ahead of that meeting, called for large emerging economies such as China and Brazil to have a greater say in running the world’s financial system.

“Our projection for next year, 2009, is for 100 percent of global economic growth to come from emerging market nations,” said John Lipsky, the IMF’s first deputy managing director.

Reports from Reuters, AP and AFP