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Fears of recession spark further
turmoil in markets
David Usborne
London
Independent
Friday, March 2, 2007
Fresh anxiety erupted about the health of the world's
major economies yesterday after investors in stock markets across
Asia, Europe and the United States once again staged significant
retreats two days after Tuesday's unexpected global equity sell-off.
In New York, the Dow Jones Industrial Average plunged more than
200 points in the first minutes of trading, seeding fears of a repeat
of Tuesday's massacre that saw a 416-point collapse on the index.
With slowdowns emerging, notably in the housing market and car
manufacturing in the United States, signs are building that it economy
may be at a pivot point, with some observers worrying about decelerating
expansion and possibly a recession looming.
The fearful mood was exacerbated by comments from Alan Greenspan,
the influential former chairman of the US Federal Reserve, about
the possibility of the US entering recession before year's end.
He told a conference in Tokyo yesterday: "By the end of the
year, there is the possibility but not the probability of the US
moving into recession." He has argued this week that corporate
profit margins appear to be narrowing, indicating that a recent
economic expansion has reached a "mature phase".
Market watchers warned of several more bumpy days to come, pointing
to the renewed erosions in stock markets globally yesterday. The
Shanghai stock market slippedan additional 2.9 per cent. The London
FTSE index closed down 55.5 points or 1.5 per cent. The Dow later
recouped most of its early losses as some more encouraging economic
data was released and closed down 34.29 points. But fears remain
that there may be worse to come. All the markets have fallen significantly
during the course of the week.
Senator Hillary Clinton, a candidate for the US presidency, last
night called events of recent days a "real wake-up call"
for the United States, saying it was "increasingly losing control"
of its economic sovereignty because of the globalisation of economies
and policy-making, including in China.
"We are in a different environment," she said, noting
the $2.2 trillion (£1.1trillion) foreign debt held by the
US. "Obviously, the level of public debt that is held by central
banks and foreign government is a problem and I don't want our government
to ignore this wake-up call."
A degree of calm was restored to the New York market after indicators
were released showing better-than-expected manufacturing numbers
for the US. The Institute for Supply Management's index of manufacturing
activity registered 52.3 for January, stronger than the 50.0 reading
analysts had expected. By convention, a recession is considered
to be in the offing if that number falls below the 50-point mark.
The US Commerce Department revealed that seasonally adjusted personal
income in the US rose by 1.5 per cent in January, which was also
a better result than had been anticipated.
Investors have been spooked by this week's gyrations after enjoying
12 months of almost unbroken growth in stocks. No one was more shocked
than the new Chinese investors who watched in dismay on Tuesday
as the Shanghai index tumbled almost 9 per cent.
US economists are contemplating a change in the balance of power
between world markets, where New York can nowadays find itself hostage
to foreign market performances.
"It's kind of the tail wagging the dog," said Arthur
Hogan, chief market analyst at Jefferies & Co in New York. "There's
no stability in Asian markets, and no stability in European markets.
We're trading the market as the rest of the globe is."
After the "Shanghai Sneeze", as some called it, officials
tried to soothe investors. There was a brief claw-back on Wednesday
in New York after Mr Greenspan's successor at the Federal Reserve,
Ben Bernanke, said in congressional testimony that "there's
a reasonable possibility that we'll see some strengthening of the
economy sometime during the middle of the year". He played
down a report that showed that a 2006 fourth-quarter expansion of
the US economy was slower than previously estimated.
There was no saying how the week would end for world markets today.
"The aftermath of Tuesday's major sell-off will linger for
the next couple of days," said Peter Cardillo, chief market
economist at brokerage house Avalon Partners. He added, however,
that "fear of recession is overblown".
That Mr Greenspan is still able to move world markets even in retirement
is certain to raise questions about whether he would do better to
keep his counsel.
INFOWARS:
BECAUSE THERE'S A WAR ON FOR YOUR MIND
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