Losses continue

08 May 2008

Anyone who thought the worst was over for the stock markets would have got a nasty shock in mid-March with the news of the near collapse of US investment bank Bear Stearns. It was only a massive US$ 30 billion bailout from the US Federal Reserve, accompanied by a bargain basement all-share takeover offer from JP Morgan that saved one of the most respected names on Wall Street from joining the growing list of sub-prime fatalities.

On the positive side, March also saw the Fed cut another 0.5 percentage point off US interest rates, which helped cushion the blow of the Bear Stearns rescue. The cut helped arrest the fall in share prices, with a small rebound.

As a result, the net loss for the Dow between weeks 7 and 12 was a relatively small 2.01%, with the Index finishing at 12100 points, having been into the 11000s for several weeks. Other major indicators suffered more heavily over the same period, with the UK's FTSE 100 sliding 6.29% to 5488 and Japan's Nikkei 225 continuing its freefall with a 10.08% drop.

As far as crane manufacturers were concerned, the falls were reasonably well contained. IC's share index for the sector dropped 4.08% over the five-week period to finish just above 500 points.

As was the case in the markets in general, it was Japan's manufacturers that contributed most to the decline, with Hitachi dropping 9.61% and Kobe Steel losing 18.40%. Tadano, however, eked out a moderate 1.21% rise, while the heaviest faller in the global sector was Austria's Palfinger.

With share prices continuing to fall, the stock markets' longer-term performance is looking poorer and poorer. Although things are not too bad for the Dow – it is only 2.9% lower than it was a year ago, other indexes are showing heavy losses. The FTSE is down 12.9% from the end of March 2007, while the Nikkei is down a massive 29.4% compared to this point last year. Again, the IC Share Index is somewhere in the middle ground, with a loss of 15.6% compared to a year ago.

Currencies

The first quarter of the year has seen the Fed cut interest rates from 4.25% to 2.25%. Such bold action has certainly helped cushion the fall for stock markets and US industry in general, but it has also pushed the Dollar to new lows.

Against the Euro, a dollar is now worth only € 0.64 – a 6.19% fall since mid February to € 1 = US$ 1.564. It has suffered an even heavier loss against the Yen – a 7.74% fall in just five weeks to US$1 = JPY 99.3. It is the first time the Dollar has fallen below the JPY 100 mark since 1995.

The only major currency the Dollar has held its ground against is the British Pound. This is because the UK is in a similar situation to the US, with a rocky banking sector, slowing economic growth, a large public deficit and falling interest rates – although the Bank of England has not been as bold or decisive as the Fed.

Outlook

What happens in the markets depends how much more bad news there is to come. More skeletons in the global banking sector's closets will damage investor confidence, as will any data that indicates the slowdown or recession in the US is getting worse.

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