Recession Fears Drive Down Global Markets (Washington Post)
TOKYO, Oct. 24 -- A recession-driven wave of selling gutted Asian and European markets Friday, with tumbling corporate profit reports and poor economic news from the United Kingdom pushing major exchanges to near double-digit percentage losses.
Bad news seemed to synchronize around the globe: Just as Asian exporters such as Samsung and Sony were reporting steep declines in profit, a result of weakening demand in the developed world, the United Kingdom said its economy shrank 0.5 percent from July through September compared with the three previous months -- a sharper than expected contraction.
Even good news had a flip side. Sales of existing homes in the United States jumped an unexpected 5.5 percent and the inventory of unsold homes fell -- but the buying was driven by a nearly 10 percent drop in the median price.
By the end of the trading day, markets in Asia were off anywhere from 9 to 11 percent, while European exchanges fell between 5.6 and 6.4 percent. London's FTSE closed down 6.4 percent, while France's CAC 40 and Germany's Dax were down 5.6 percent each. Wall Street also was down sharply.
The Organization of Petroleum Exporting Countries, meanwhile, responded to falling oil prices by cutting output targets for its 11 members by 1.5 million barrels per day, or about 5 percent of the current 28.8 million barrels per day.
Oil prices have fallen in recent weeks by nearly 60 percent from last July's record of more than $147 per barrel, with crude currently trading at about $65 per barrel.
Interviewed on CNBC as he left an emergency meeting of the group in Vienna, Qatari oil minister Abdullah bin Hamad al-Attiyah said the cartel was responding to the fall in world demand, a fact that, coupled with the financial crisis, has upended the budgets of OPEC members.
"We hate to cut production, but we've been forced because nobody will buy it," he said. "We produce for somebody to buy. . . . We can't produce and nobody buy it." Further cuts are possible, he said, "if the market has deteriorated" when OPEC next meets in December.
"Demand is collapsing," said Rafael Ramirez, oil minister for Venezuela.
The new quotas will take effect in November.
Along with being rattled by a global financial crisis, investors and policymakers are now watching economic data and corporate profits for signs of weakness. In addition, aggressive selling by hedge funds and other large investors -- either to raise needed cash or in response to the demands of clients -- is helping push markets lower.
Volatilty has been the rule, as evidenced by the collapse of market futures today to the "circuit breaker" limits meant to prevent panic selling. Premarket trading on the S&P 500 was stopped for part of the morning. The limits are set every three months and equate to a premarket decline of 5 percent, calculated on the day the new quarterly limit is set. Limits of 10 percent and 20 percent are in place for the actual trading day and trigger a halt in trading if they are breached.
The Nikkei average in Tokyo fell 9.6 percent to its lowest close in five years, while the Kospi index in Seoul plunged 11 percent and finished down 20 percent for the week. Across Asia, stocks were down more than 5 percent.
Samsung, the South Korean company that is the largest chipmaker in Asia, fell 14 percent. Sony Corp., the world's second-largest consumer electronics company, fell 12 percent, after sharply cutting its profit forecast. Canon, the world's biggest maker of digital cameras, dropped 9 percent.
Brokers in Asia warned that this could be just the beginning of steep declines in the stock prices of major companies that depend on exports to the United States and Europe for much of their profits.
"If Sony's earnings are that bad, other firms' earnings could also be considerably grim, and this is alarming investors ahead of earnings reports next week," Tsuyoshi Segawa, an equity strategist at Shinko Securities Co., told the Kyodo news service in Tokyo.
In Japan, the resurgent yen rose faster against the dollar in the past week than it has in the past 10 years. Its value is rapidly eroding the competitiveness of Japanese exports, which were already plummeting due to collapsing demand in the United States and Europe.
In South Korea, a $130 billion government effort to inject liquidity into the country's banks failed this week to stabilize markets or prop up the country's currency.
Stocks have fallen about 35 percent this month and the won continues to be worst-performing major currency in the world, down about 35 percent against the dollar this year.
Much of the decline in the won and of stocks in Seoul has been triggered by foreign investors pulling their money out of the country's stock market. Foreign ownership of Korean stocks has fallen to less than 30 percent after peaking at about 42 percent four years ago, according to the Yonhap news agency.
The Bank of Korea said Friday that growth in the country's export-driven economy has fallen to the lowest level in four years. With high levels of corporate and household debt, South Korea is regarded as perhaps the most fragile major country in Asia. Analysts say a collapse in export earnings could cause a cycle of bankruptcies and business failures.
The Mumbai stock market fell by almost 11 percent and India's National Stock Exchange dropped 12 percent in a round of selling dubbed "Black Friday" by local news channels.
