Wall Street slump sparked worldwide share jitters
A cocktail of bad news from major US firms and renewed credit fears was behind the Friday sell-off on Wall Street which sent tremors through global markets today.
Record oil prices and the 20th anniversary of the 1987 Black Monday stock market crash added to the nerves of investors as the Dow Jones Industrial Average shipped 367 points – a loss of nearly 3%.
The fall was hardly on the scale of the Dow’s 23% tumble 20 years ago. But following a brief market recovery following the panic of the summer’s credit crunch, investors reacted badly to suggestions that the woes of August and early September are lingering on.
New York-listed Caterpillar, one of the world’s largest construction equipment makers, warned of its continued struggles with a slumping US housing market as it disappointed the market with lower-than-expected profits.
Caterpillar also cut its results forecasts for the full-year, while figures from fellow manufacturer Honeywell also failed to live up to expectations.
Meanwhile Wachovia, the country’s fourth largest bank, joined a succession of its peers in revealing the impact of the credit crunch on profits. Wachovia said third-quarter profits had fallen 10% and wrote off 1.3 billion dollars (£634 million) on sub-prime mortgage products and other loans.
Ratings agency Standard & Poor’s added to the fears over high-risk sub-prime mortgages after cutting its rating on a host of mortgage-backed financial instruments.
Vanishing market confidence in these securities – bonds based on products such as high-risk US mortgages – was one of the main factors behind the summer credit crunch as banks fearful of exposure to losses stopped lending to each other.
The US losses triggered overnight falls on Asian markets, with London’s FTSE 100 Index and other European exchanges all opening lower today.
But with little economic or corporate data to give firm direction in London, Gary Thomson, head of sales trading at CMC Markets, said there were “zero fundamentals” behind the selling seen so far.
He said: “We are just really playing catch-up with the US. The rest of the week should be interesting – we could see some pretty hefty swings.”
