According to futures trading today Wall Street will open tomorrow around 450 to 500 points down after a second day of selling on markets in Asia and overnight plunges in Europe and South America.
The US market was closed overnight for Martin Luther King Day and in the absence of a lead from the world’s biggest market, Australian traders took the easy option of selling rather than taking a chance and holding on to stock.
The local market was down more than 300 points or around 5% by midday. That’s a loss in value approaching $60 billion and pushes the two-day loss to more than $100 billion. It will be the 12th straight day of falls.
The futures for the Dow Jones average ended trading in the US down 514 points, but recovered in Asian trading to be off around 449; the trading on the S&P 500 overnight indicated a 60 point (or 4% plus) decline but this had recovered to around 53 points in late morning trading in Asia.
And the IMF’s managing director, Dominique Strauss-Kahn, said overnight that all developed countries were suffering from the slowdown in the United States, putting the world economy in a serious situation. He also warned that emerging market growth could be dragged down by the outlook in the US.
Much of the selling is smoke and mirrors dealings whereby hedge funds and other investors sell short shares they don’t own while arranging to buy them at lower prices through options deals. That way the pressure is on the downside, but there is clearly unease with companies exposed to property of all types in the UK and US (and especially commercial and retail property), listed investment companies, banks (especially the investment banking types like Macquarie and Babcock and Brown), and geared investors like MFS and Allco Finance.
The fall this morning means Australia has joined around 36 other economies around the world whose stockmarkets are now down 20% or more and therefore in bear territory. These include Britain, much of continental Europe, Japan and Hong Kong.
London’s FTSE-100 dropped 5.48%; France’s CAC-40 Index plunged more than 6% and Germany’s blue-chip DAX 30 slumped a massive 7.1% in value. Canadian stocks fell as well and Brazil saw stocks shed 6.9% on the main index of Sao Paulo’s Bovespa exchange.
In Asia, India’s benchmark stock index fell 7.4%, while Hong Kong’s Hang Seng index dropped 5.5%. Japan’s Nikkei 225 index slid 3.9% to its lowest close in more than two years. China’s Shanghai Composite index was off 5.1%, partly on worries about mainland Chinese banks’ exposure to subprime mortgage investments.
The Nikkei had shed another 2.73% to 12,962 in early trading this morning.
Gold lost heavily overnight, as did other major commodities. Investors who thought gold was a store of value abandoned the metal again overnight with the price down almost $US20 an ounce to $US862 at one stage. The gold bugs and bulls have run for cover at the first sign of the bear emerging.
Metal prices also declined: copper was down 3.8%, zinc 5.8%, nickel 3.7%, aluminium 1.7%. February crude oil fell 2.2% to $US88.56 a barrel in electronic trading on the New York Mercantile Exchange.
Talk of BHP walking away from Rio Tinto, along with declining equity markets, saw both down around 10.0% in London. On the ASX this morning, BHP fell $1.56, or 4.7%, to $31.72 and Rio lost $9.75, or 8.5%, to $104.50 but recovered slightly just before noon.
The Australian dollar also sank overnight, losing more than 1.5 US cents to drop below 86 US cents for the first time in almost a month, and slipping to a five-month low against the yen.
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