World Markets Drift Lower; Europe Faces Recession Conditions

Bikram Pandey
19 Dec, 2011
New York City

World markets drifted lower after Asian indexes fell and Europe brace weak economic conditions. France faces a debt rating downgrade and France, Italy and Spain expand the list of nations facing early recession. The role of IMF is questioned as the bank prepares to lend troubled European nations.

[R]3:00 PM New York – World markets drifted lower after Asian indexes fell and Europe brace weak economic conditions. France faces a debt rating downgrade and France, Italy and Spain expand the list of nations facing early recession. The role of IMF is questioned as the bank prepares to lend troubled European nations from funds received with conditions.[/R]

Stocks on Wall Street trended lower in the absence of economic news and growing worries that the euro zone economies may be already in early phase of a recession and Australian retailers also face similar conditions.

Markets in early trading were weak after North Korea fired several short range missiles before announcing the death of the country’s leader and hailed his young son as a new leader. The news of his death was kept secret for two days after a power struggle that drew the attention China, South Korea and Japan.

European markets were mixed after European Central Bank president Mario Draghi offered a sober assessment of the economic outlook and blunt talk from France based Fitch Ratings that the euro zone is not politically and financially capable of solving its problems.

Ireland, Greece and Spain are in recession and Germany, France, Belgium and Italy are already in early stages of recession. Spain’s recently appointed prime minister in his first address to the parliament said today that his government will propose specific steps to meet budget deficit targets by the end of the year and promote consolidation of banks.

In corporate news, Winn-Dixie surged 71% after it agreed to be merged with a grocery chain Bi-Lo that valued the grocer at $560 million. The two grocery chains based in the south eastern U.S. have been struggling in the last five years and have closed several unprofitable stores.

Saudi Prince Alwaleed bin Talal and the company he controls invested $300 million in Twitter. Kingdom Holding Co said in a statement that the investment is strategic meaning a stake of more than 3% was acquired in the micro blogging service. Twitter raised $400 million in the summer that valued the company at $8 billion.

European markets closed higher as ratings agencies warn of more debt downgrades in the region. Euro zone ministers meet to finalize €200 billion IMF funding that violates the spirit of EU charter.

The immediate fund injection in the IMF is expected to be rerouted to the struggling peripheral euro zone nations. The funding arrangement with specific borrowers in mind is contrary to the charter of the multilateral institution and showed a glaring bias in the management of the lender of the last resort.

The current IMF lending practices that favor European borrowers is in stark contrast to its practice in the late nineties when the political interference from the European leaders at the time of Russian and Asian crises prevented the crucial lending.

Saab Automobile filed for bankruptcy today in a Swedish court, ending a two-year effort to regain market momentum after it was spun off by General Motors Co.

Stocks in Tokyo trading declined more than 1% and extended losses of last week. Market sentiment declined after North Korean leaders died of a heart attack and raised fears of heightened tensions in the peninsula. Ocean freight companies declined and traded near 10-year low.

Australian shares plunged after investors worried that ongoing euro zone crisis will drag commodities prices. Retailers declined more than 3% after surf apparel retailer Billabong plunged 44% on earnings warnings.

Australian retailers have announced profit warning and weak sales and most retailers are facing recession like conditions as most shoppers prefer to shop overseas to take advantage of strong dollar.

Commodities, Bonds and Currencies

The yield on 10-year U.S. bond decreased to 1.81% and 30-year bond inched down to 2.79%.

The U.S. dollar edged up 0.3% to $1.301 to one euro and traded higher against the Japanese yen to 77.93.

Immediate delivery futures of Texas crude oil increased $0.11 to $93.64 a barrel and futures of natural gas fell 2 cents to $3.09 per mbtu and gasoline price added 1.9 cents to 248.89 cents a gallon.

In metals trading, copper decreased 2.3 cents to $3.30 per pound, gold fell $2.70 to $1,595.20 per ounce and silver decreased $0.85 to $28.82.