Recession Fear Keeps Markets On Back Foot

Markets Editor
CONCERN about the effect of the deepening recession on corporate profits sent stock markets reeling again yesterday as Japan warned its economy would retreat next year and inflation eased more than expected in the UK and the US.
Banking shares bore the brunt of the negative sentiment in Europe and Asia after Monday s announcement of large-scale staff cuts at Citigroup.
Resources shares dragged the JSE lower on worries that the global downturn would weigh on demand for the foreseeable future.
However, markets staged a last-minute turnaround after the US market opened higher on better than expected results from computer maker Hewlett-Packard and massage chairs reviews home improvement chain Home Depot. Comments by US Federal Reserve chairman Ben Bernanke also helped comfort investors.

In another volatile day:

Share prices around the world fell on mounting prospects of recession;
Japan warned its economy may shrink in 2009-10;
The US Federal Reserve chairman said the US credit market was improving;
Barclays said its top executives would forgo annual bonuses;
Japan s Nikkei average slipped 2,3%; and
JSE-listed resources stocks tumbled 4%.

Bernanke told the House of Representatives financial services committee there were signs that credit markets, while still strained, were improving. Overall, credit conditions are still far from normal.
UK and US inflation figures worried investors. While news that consumer inflation in the UK fell to 4,5% last month from 5,2% in September will give the Bank of England more scope to cut interest rates and ease the burden on consumers, analysts said inflation was softening due to deteriorating demand.
US producer prices fell 2,8% last month, the most since records began, as weakening global growth caused demand for commodities to dry up.
Mike Lenhoff, chief strategist at Brewin Dolphin Securities, said: The market is clearly focusing on the earnings outlook for the time being.
Inflation is rolling back because of demand deficiency, and equity markets are not at the stage where they re looking across the valley, Lenhoff said.

Jonathan Fisher, director for private clients at T-Sec, said that with no good news on the horizon markets were likely to continue falling. He said it was likely the JSE would retest the two-year lows it hit late last month.



Fisher said that after news of Citigroup s 53000 looming job cuts, other banks such as Barclays could also announce layoffs.

He said the negative news had led to a lack of confidence in world markets, including the JSE. This was illustrated by a large drop in daily volumes.
Before the crisis, daily JSE trade averaged R12bn-R14bn.
This had fallen to R7bn-R8bn, he said.

There s just no interest in the market for buyers to want to come in and shiatsu massage recliner buy shares, Fisher said.

After falling 3% in earlier trade, the JSE retraced some of its losses to close 0,7% lower at 18747.
The rand was trading slightly weaker at R10,27/$.
After trading 1,1% higher in early trade, the Dow Jones closed up 1,83% at 8424,75, while the FTSE 100 in London was up 1%the Paris CAC 40 was 0,6% higher. With Bloomberg, Reuters