The stock market marked the 20th anniversary of Black Monday with the biggest falls since July as Caterpillar warned of a recession.
Hope that the mortgage crisis has bottomed and is coming to an end was shattered by economic data this week. Existing home sales in September fell to a record low with prices falling and sales slowing amid rising foreclosures and tighter lending standards. Sales of new homes climbed off an 11-year low but were still weaker than expected.
A surprise drawdown in oil stocks saw oil prices once again trading above $88 US a barrel, helping energy stocks but rekindling concerns that higher energy prices will eat into corporate profits.
There were a number of third quarter earnings reports released. A positive result by Apple helped technology stocks, with the Nasdaq outperforming expectations. Apple reported a 67% jump in third-quarter earnings.
Financial stocks continued to disappoint as fallout from the sub-prime mortgage crisis continues to hit the bottom line.
Merrill Lynch reported its biggest quarterly loss in history. The loss came after an $8.4 billion write down, $7.9 billion of which involved subprime mortgages and related securities. Merrill Lynch shares closed at a 2-year low on Wednesday, falling by 5.8%
The ninth largest US bank, National City, reported a quarterly profit fall of 80%, with shares trading at a 7-year low. Losses mounted despite the sale of its subprime lending operations to Merrill Lynch. National City indicated it would be cutting 2500 jobs, while Bank of America reported it would be cutting 3000 jobs
Microsoft reported Wednesday that it would pay $240 million for a minority stake in Facebook, raising Facebook’s value to $15 billion.
The New Zealand Central Bank held official interest rates unchanged at 8.25% as expected. The bank reported that rising food prices and an increase in fiscal spending was adding to inflationary pressures.
South Korea saw its longest economic expansion in 15 years, with third-quarter economic growth at 1.4% above the previous quarter. An increase in consumer spending helped compensate for slowing exports and a falloff in business investment.
In Australia, the much anticipated CPI inflation numbers came in higher than expected. The numbers were being closely watched to gauge whether the Australian Central Bank would have cause to raise interest rates on 7 November. The annualized median came in at 3.1%, beating forecasts of 2.8% and raising the likelihood of a rate hike. If this occurs it will be the first time that the Central Bank has raised interest rates in an election month.
China is on track to overtake Germany as the world’s third-largest economy. China recorded 11.5% growth in the third quarter, lower than 11.9% second quarter results but still robust.
BHP Billiton posted a disappointing third-quarter production report. Copper production was up 23% year on year, but down 10% from the previous quarter. Nickel production was down 13% due to maintenance at BHP’s Kalgoorlie smelter. On the positive side, oil production outperformed expectations and iron ore production was at record highs.
The markets were driven by company earnings this week. Technology and healthcare companies appear to be leading the markets, while financial stocks have once again faltered. US data indicating a weak economy raises the likelihood of an interest rate cut when the US Federal Reserve meets at the end of October. Signs are pointing to a further slowdown in the US economy with the US housing crisis deepening. On the other side of the globe, China continues to steam ahead with third-quarter growth of 11.5%.
Head of Fundamental Analysis
HUBB Financial Group