NY Times, October 16, 2008
U.S. Stocks Slide After Economic Data
By DAVID JOLLY and BETTINA WASSENER
Shares in New York fell sharply on Wednesday, following markets in
Europe, as investors begin to face the likelihood that serious
dislocations will plague the global economy even if the coordinated
bailouts announced this week succeed in restoring confidence to credit
markets.
In New York, investors were also digesting economic reports that
reinforced concerns about a slowdown. In the first report, the Commerce
Department said that retail sales decreased 1.2 percent last month,
nearly double the 0.7 percent drop that had been expected. In the
second, the Labor Department reported that core wholesale prices, which
exclude volatile food and energy costs, rose 0.4 percent, above
analysts’ expectations of a 0.2 percent increase.
Shorly before 1 p.m. , the Dow Jones industrial average was down almost
300 points, or 3.2 percent, and the broader Standard & Poor’s 500-stock
index was down 4.1 percent. The technology heavy Nasdaq was down 3.4
percent, after the chipmaker Intel reported a profit for the quarter,
but noted weaker-than-expected sales of chips used in corporate computers.
Crude oil for November delivery fell $3.29 to $75.14 a barrel.
“Everyone was focused on the credit crisis, but behind that, we have
numbers coming in showing us the economy was much weaker than expected,
and continuing to get weak. The numbers coming out have been dire to say
the least,” Ryan Larson, the head equity trader at Voyageur Asset
Management, said.
Jobless claims are creeping higher, a rise that is expected to
accelerate. Of even greater concern, major manufacturing indicators are
down. “If manufacturing has been the sliver lining that’s been holding
us up to this point, it’s gone,” Mr. Larson said, referring to a index
of manufacturing in New York State that tumbled in October to the lowest
since its inception in 2001.
The general business conditions index, released Wednesday by the New
York Federal Reserve, fell to minus 24.62, from September’s minus 7.41.
Credit market indicators showed improvement, with the so-called Ted
spread, the gap between yields on three-month government securities and
the rate that banks charge each other for loans of the same duration,
fell 6 points to 4.30 percentage points. Analysts say a spread below 1.0
point would suggest that conditions were returning to normal.
“There are slight signs of the credit market easing, but it’s still
extremely tight,” Mr. Larson said. “We’re not going to see the quick fix
markets wanted to see. It’s a process. You want to see recovery, but the
only thing that’s really going to help us is time. Nothing is a quick
fix in this process, and that’s what the market is realizing.”
“The market’s focus in a day has shifted from resilience in the
financial sector to the recession,” said Brian Gendreau, investment
strategist at ING investment management.
Investors were also watching a meeting in Brussels of leaders of the 27
European Union countries, who were meeting Wednesday to decide the
details of the big bank rescues announced Sunday and Monday.
Gordon Brown, the British prime minister, has called for the overhaul of
the global financial system and the creation of “a new Bretton Woods,”
the agreement that established the financial institutions of the
post-World War II era.
Espen Furnes, a fund manager at Storebrand Asset Management in Oslo,
said that there was concern about European economies softening. But
despite the weak showing Wednesday, the market mood remained
fundamentally one of relief, as “people are hopeful that the bailouts
are going to make a big difference,” Mr. Furnes said.
“I wouldn’t read too much into the numbers today,” he added. “The
declines are partly in reaction to investors selling after a couple of
really good days.”
European markets closed substantially lower. The DJ Euro Stoxx 50, a
barometer of euro zone blue chips, was down 6.4 percent, the CAC-40 in
Paris fell 6.8 percent, and the DAX in Frankfurt lost 6.4 percent.
The FTSE 100 index in London was down 7 percent after Britain’s Office
for National Statistics said Wednesday that the unemployment rate rose
to 5.7 percent in the three months through the end of August from 5.2
percent in the previous quarter. The agency said the addition of 164,000
people to ranks of the jobless in the latest quarter was the biggest
increase in 17 years.
Tokyo shares, which soared 14.1 percent Tuesday, recovered from morning
losses to close 1.1 percent higher. In Hong Kong, the Hang Seng index
fell 5 percent.
Trading in futures suggested the Standard & Poor’s 500 index would fall
about 1.5 percent at the opening Wednesday in New York. The weak showing
in equity markets followed a disappointing performance Tuesday on Wall
Street, when the Dow Jones industrial average was unable to sustain
early gains and ended the day down 0.8 percent.
Asian countries on Wednesday announced new measures to grapple with
fallout from the crisis. Gloria Macapagal Arroyo, the Philippine
president, said Asian policy makers had agreed to create a fund to help
any countries suffering liquidity problems, with the World Bank
committing $10 billion, The Associated Press reported.
The agreement was reached in Washington after a meeting of finance
officials from the 10-member Association of Southeast Asian Nations and
their partners from Japan, China and South Korea and representatives of
international lending institutions.
After a host of European data Tuesday suggesting that the region was
headed into a recession, Japan announced Wednesday that its
current-account surplus shrank 52.5 percent from a year earlier, more
than economists had expected. More alarming, exports during the month
edged up only 0.9 percent, while imports soared 20.2 percent from a year
earlier, mostly because of higher oil prices. Japan has suffered from
weak domestic demand for a decade, and sales overseas have been a key
support to the country’s economic growth.
The dollar was mixed as the yen rose against other major currencies. The
euro fell to $1.3604 from $1.3620 late Tuesday in New York and fell to
137.94 yen from 139.03. The British pound rose to $1.7485 from $1.7397.
The dollar fell to 101.09 yen from 102.07 and rose to 1.1375 Swiss
francs from 1.1373.
Sharon Otterman contributed reporting.
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