Global recession fears intensify, markets dive

[Naveed Yaseen]

WASHINGTON (October 25 2008): Signs of a sharp slowdown in Europe and a barrage of profit warnings and job cut announcements from companies around the world intensified fears of deep global recession on Friday. Stock markets slid across the globe, currencies experienced almost unprecedented volatility, and oil and other commodities tumbled on fears of plummeting demand that would accompany a global economic slowdown.

"I sense we've moved beyond the credit crisis. There's a recognition of the damage inflicted on the global economy, that is, the recession, by the credit crisis," said Mike Lenhoff, chief strategist at Brewin Dolphin Securities in London. "It's not just limited to the developed world. You can run but you can't hide anywhere."

But the Dow and S&P 500 indexes bounced back after dropping more than 5 percent at the open. In late afternoon trading, each was off about 2 percent. The economic crisis prompted further US government intervention: Officials stepped in to help finance the sale of ailing Cleveland-based National City Corp and prepared to announce 20 more banks will receive capital injections.

The US Treasury Department is closely studying how it could give relief to bond and mortgage insurance companies under Washington's $700 billion financial services rescue package, two sources familiar with the deliberations said. Speculation about a bailout of the US auto industry also increased as General Motors has intensified negotiations to buy Chrysler's auto operations, intending to seek US government aid to support any deal, people familiar with the talks told Reuters.

Chrysler said it was slashing about 5,000 white-collar jobs and industrial conglomerate ITT said it would also cut an unspecified number of positions. Many analysts declared recession in Europe after reports showed the private sector economy in the 15 euro zone countries on track for its worst performance since the recession of the early 1990s.

Britain's economy experienced a much deeper-than-expected 0.5 percent contraction in the third quarter, its first contraction in 16 years, making a recession all but inevitable. Canada's finance minister said the country is headed for tough times, although it is better able to withstand them than most others in the West. "These are difficult times. Canadians should not underestimate what we're facing. We're not an island. We're a trading nation," Finance Minister Jim Flaherty told a news conference.

CHINESE WARNING: China warned the outlook for the world economy was grim. "The global financial crisis has been constantly spreading and worsening, creating a severe shock to global economic growth," Chinese Premier Wen Jiabao told an Asia-Europe Meeting of 27 EU member states and 16 Asian nations.

The pace of US existing-home sales rose in September, but a Reuters poll of economists suggested battered US housing prices will fall into next year and a possible recovery in 2010 will be meek at best. Foreign exchange markets saw extreme volatility, with the yen rocketing to multiyear highs against the dollar and euro. The euro/yen rate fell 10 percent at one point.

Seventy-nine years to the day after the 1929 crash that led into the Great Depression, stock markets were in free fall around the world as investors panicked. Japan's Nikkei index ended down 9.6 percent, and European shares dropped 5.4 percent to close at their lowest level in more than five years.

"There's definitely concern that this could be a recession for the United States, deep and long," Doreen Mogavero, CEO of independent NYSE member firm Mogavero, Lee & Co Inc, said on the New York Stock Exchange trading floor. Losses were fuelled by funds selling to raise cash to meet large-scale redemptions by investors, but some traders said the decline was not as bad as it could have been.

Russia suspended trading on its stock market until at least Tuesday after the market lost more than 13 percent of its value, hitting its lowest levels since late 2004. Opec, in emergency session, agreed to cut oil output by 1.5 million barrels per day in a bid to halt a steep slide in prices. But the price of US crude fell more than 5 percent, below $64 as economic gloom overshadowed the cut. Other commodities from copper and zinc to sugar and coffee were battered by sharp selling - bad news for emerging market economies that are major producers, and some governments.

The price of Venezuelan oil has fallen more than 10 percent this week, boosting financial pressure on the government of leftist Hugo Chavez, whose popularity depends on oil-financed social programs.

The recent thaw in global money markets appeared to be coming to a halt as concerns over a global slowdown brought focus back to counterparty risk and raised expectations of sharp interest rate cuts. The cost of borrowing overnight dollars rose and sterling overnight rates increased.

'SERIOUS RECESSION'"It looks like it is a serious recession rather than just a mild recession," said Gilles Moec, economist at Bank of America, of the crisis set off by a US housing market collapse nearly 15 months ago.

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