Big Rate Cuts As Stock Markets Sink

U.K. Bank Slashes Key Rate By 1.5 Percent Hoping To Revive Credit Flow, But Investors Stay Nervous

(CBS/AP)  World stock markets slumped Thursday despite interest rate cuts across in Europe, including a much bigger than anticipated reduction from the Bank of England, as investors continued to fret about the outlook for the global economy.

The FTSE 100 index of leading British shares closed down 258.32 points, or 5.7 percent, at 4,272.41, while Germany's DAX was 353.30, or 6.8 percent, lower at 4,813.57. France's CAC-40 was down 230.86 points, or 6.4 percent, at 3,387.25.

Fueling the gloom were new statistics pointing to a serious recession, said Palmer. Global trade volumes fell by half since June, both in Europe and America, and most companies have been reporting sinking profits for weeks.

Palmer said that small businesses in particular, often viewed as the cornerstone of an economy, are saying they can't get the loans they need from weak and jittery banks.

The Dow Jones index of leading U.S. shares was down 301.39 points, or 3.3 percent, at 8,837.88. Thursday's losses on the Dow come a day after a nearly 500 point decline Wednesday.

Any hopes that lower borrowing costs around Europe would fuel a rally in stocks soon dissipated and investors continued to book profits following recent sharp gains amid mounting fears about the state of the world economy. Rate cuts often boost stocks in the short term and can support growth, but on Thursday investors were not impressed, especially with the ECB decision.

While the Bank of England slashed its benchmark rate by 1.5 percentage points to 3.0 percent, a level not seen since 1955 and its biggest single cut since March 1981, the European Central Bank and the Swiss National Bank - in an unscheduled decision - opted for more modest half-point reductions. Central banks also cut rates in Denmark and the Czech Republic.

The Bank of England's bigger than anticipated rate cut stoked expectations that the European Central Bank would be more aggressive than expected. Its decision to cut by only a half-percent disappointed investors looking for more boldness.

"The prospects for the euro-zone avoiding recession now look virtually non-existent, and the ECB will be challenged to change its relatively conservative approach quickly to boost prospects across the continent, before a bad situation gets decidedly worse," said Ben Read, managing economist at the Center for Economic and Business Research.

The failure of the FTSE to rally strongly in the wake of the Bank of England's aggressive interest rate cut indicated that the bank may have further reinforced fears about the length and depth of the recession in Britain.

"What does the Bank know that the rest of us don't?" said Andrew Milligan, head of global strategy at Standard Life Investments.

"The Bank of England's inflation report due out next week should provide the answer, giving investors full and detailed information about its views on the depth and extent of the British recession and how far inflation might fall in 2009," he added.

Europe's indexes had already been lower in the wake of hefty losses Wednesday on Wall Street and in Asia overnight as investors fretted about the global economy. Japan's Nikkei index was down 6.5 percent at 8,899.14, and Hong Kong's Hang Seng Index 7.1 percent lower at 13,790.04.

Stocks around the world have enjoyed a strong rally over the last week or so, partly on relief that the U.S. presidential election was coming to an end.

However, investors know that President-elect Barack Obama will have his work cut out to improve the U.S.'s immediate economic prospects and that Inauguration Day is still more than two months away.

Further proof of the scale of the downturn in the U.S. emerged Thursday with jobless claims data fanning investors' worries that the economy is in recession.

New claims for unemployment benefits did dip by 4,000 to a seasonally adjusted level of 481,000, according to the Labor Department. But jobless claims above 400,000 are considered recessionary levels, and have run above that figure for 16 weeks.

The run of bad claims data has ratcheted up fears that Friday's closely-watched U.S. jobs report for October will end up being much worse than anticipated.

Earlier, 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.

Concerns about the global economic outlook hit oil prices too. They were down $4.35 a barrel to $60.95 a barrel. Oil prices have fallen by around 60 percent since peaking at $147.27 a barrel in mid-July.

Disappointment about the European Central Bank's interest rate cut hit the euro, which was down 0.8 percent at $1.2855. Elsewhere, the dollar was up 0.1 percent at 98.30 yen.

[txgrouch2007]

And the market closed down nearly ANOTHER 500 POINTS today.

This is not good.

All of you who thought the market would stabilize around 9000 are in for a rude awakening.

I''''m looking for closer to 6000.

[txgrouch2007]

How from the beginning of your post it was Clinton(D) and others were at fault then morphed at the end to the Republicans fault, you are either stupid or don''''t read your own post.
Posted by d7767w at 12:19 PM : Nov 06, 2008

Or could it be he''s FINALLY realized that BOTH sides are to blame?

Are YOU so stupid that you cling to the belief that ONLY ONE side can be wrong and the other is AUTOMATICALLY RIGHT???

[fredrey-2009]

The stock market didn''''t drop because of Obama.

It dropped because idiots like BARNEY "MELTDOWN" FRANK got re-elected by the idiot voters.

I''''m not sure if it dropped more because now Frank can spend ANOTHER six years wrecking the economy, or is it because investors saw that the publics is SO STUPID THEY STILL HAVEN''''T LEARNED anything.



--------------------------------------------------------------------------------

Posted by txgrouch2007 at 11:02 AM : Nov 06, 2008


That''s right! No one to blame now but the people themselves! They have spoken and in doing so demonstrated their lack of intelligence or concern for the country.

[fredrey-2009]

GO BEECH GO!!!!!! DOWN BEECH DOWN!!!!!

[lochlan-2009]

"the cost of the bailout and a budget deficit that some believe could hit nearly $1 trillion next year"

This is what the market crash is about. The $1trillion budget deficit coming next year. The government is going to financialy collapse. We can not pay back what they have stollen, it''s too much. Makes it easier for them to set up a New World Order of International Financial Oversight. Come on America, think!!!!

[drinuk]

Far TOO much power in the hands of the few worldwide.
It is time they were put behind bars, tomorrow is not soon enough.

[drivelphobe]

If voters put Barney Frank back in, they deserve what they get and that is a depression that will make 1929 look like party. All incumbents needed to be voted out of office.

Take up arms, beef up your ammo stockpiles, store cash until it is worthless, stay in great physical condition and prepare to defend yourself against hordes of wandering homeless, out-of-entitlements, transients. These wasteful, selfish politicians have spit in our faces only to be voted in again by imbeciles.

The depression is coming and no one can stop it now. The politicians feel immune, but they too can''t spend money that is worthless. What a disaster, and it could have been prevented with just a little effort and common sense.

[txgrouch2007]

The stock market didn''t drop because of Obama.

It dropped because idiots like BARNEY "MELTDOWN" FRANK got re-elected by the idiot voters.

I''m not sure if it dropped more because now Frank can spend ANOTHER six years wrecking the economy, or is it because investors saw that the publics is SO STUPID THEY STILL HAVEN''T LEARNED anything.

[missingamerica]

Good old greed, operating under the guise of "free trade", has poked the entire planet...

Bill Clinton and the U.S. Chamber of Commerce and the corporations and Wal*Mart and the Republicans and the CEOs have created a massive imbalance in the economy of the U.S. and the world with their inequitable "free trade", and in particular with the haste with which they offshored America''s manufacturing and service sectors.

The world depends upon us to consume the things we once made here that are now made elsewhere, and consumption requires money which requires jobs.

To get jobs back, the cost of manufacturing and providing services in those offshore countries must increase to levels comparable to ours; that is, their wages, benefits, and labor and environmental laws must INCREASE to match ours. That allows the cost of transportation to dictate location.

But the aforementioned entities who supported and still support "free trade" do not want the wages and benefits to increase or to have labor and environmental laws enacted in those places where our factories went, because that will inhibit their profits.

For twenty-five years I have been trying to get the point across that our economy is a pyramid and you attack the foundation stones at the risk of the entire structure.

But the Republicans just kept forcing the money upwards so more and more of them could stand on the apex, while the whole thing got more and more wobbly...