All 3 major US indices are on bearish ground with the Dow Jones Industrial Average and S&P 500 indices falling more than 20% since the last highest peak.
Reporting season kicked off with Alcoa the first off the ranks this week. The 2nd quarter result was better than expected with 66 cents per share or $546 million. Although that represented a fall in profit of more than 18%, the results still topped expectations.
Shares in Freddie Mac and Fannie May were sold down this week with persistent worries that shareholders would be wiped out. Recurring rumors that Lehman Brothers were in trouble continued.
Apple shares were well supported ahead of the new iPhone launch on 22nd July. Some analysts are saying that as many as 1 billion phones could be sold worldwide in the first few days.
Japan’s core machinery orders rose faster than expected at 10.4% in May but the news didn’t have a huge impact with economists taking little hope from the results.
Australian Labour numbers in June were much stronger than expected with an increase of 29800. The market was only expecting an increase of 7500 jobs. The unemployment rate fell from 4.3% to 4.2%. Economists have said that the number is a lagging indicator and though the numbers were strong, leading data is pointing to a slowdown in Australia’s economy.
Lenders in Australia were lifting variable interest rates independent of a rise by its central bank. Persisting problems in the credit markets has seen the wide spreads and increased cost of funding impacting on margins. This week saw St George Bank and Commonwealth Bank both lift variable interest rates on home loans.
The FTSE plunged into bearish territory this week with bad news from the housing market helping to fuel fears of a recession. Britain’s largest mortgage lender said that average house prices fell by another 2% last month.
In economic news, 1st quarter GDP was revised downwards from 0.8% to 0.7%. In Germany, the trade deficit fell due to a 3.2% drop in exports. Spain is warning of a recession in the 2nd part of the year while Irish banks are also warning of recession.
But it was a decision by the Bank of England to not cut interest rates but to leave interest rates unchanged at 5% which triggered another sell off on European markets.
All eyes are currently on the geopolitical tensions between Israel and Iran. At the moment, oil prices are a huge factor in determining where interest rates are headed. Iran has been testing missiles in the Persian Gulf while Israel has been threatening a possible attack on Iran later on in the year. This has fuelled oil prices. If the geopolitical tensions ease, we could see a pull back in the price of oil. For now, not only are these high oil prices bad news for the global economy but also the stockmarkets where companies are seeing their profits eroded by the higher input costs.