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Markets' rally fades on bailout and oil blow
Hugo Duncan and Nick Goodway, Evening Standard09.09.08
The rally in world stock markets petered out tonight as oil prices continued to slide ever closer to $100, and on reports that talks about a Korean-funded bailout for troubled investment Lehman Brothers had ended.
The FTSE 100 index, which had been up nearly 80 points at one stage, fell back to stand just 19.3 higher at 5465.6. In New York, the Dow Jones Average was just 19.9 better at 11,530.7.
Ahead of tonight meeting of the oil producers Opec in Vienna its president, Chakib Khelil, implied the organisation would not be cutting output to boost prices.
He said: "We are producing at a certain level. We will probably stay at that level."
He suggested that oil prices could stay at current levels for the "next few months". Brent crude fell $1.56 to $101.88 a barrel.
In New York shares in Lehman fell another 8% after yesterday's 13% tumble. The bank will update investors on "key initiatives" next week but fears are growing that Korea Development Bank has walked away.
At the same time the threat of a full-blown UK recession increased today after output from British factories sank for a fifth successive month.
Official figures showed manufacturing production fell 0.2% between June and July with makers of electrical goods and food products hit particularly hard.
A string of City economists said the figures, the longest run of decline for seven years, made recession ever more likely. It raised hopes interest rates will be cut before the end of the year and then aggressively in 2009.
"Once again, it's grim news for manufacturing," said Philip Shaw of Investec.
"Overall, it would tend to support our call that the economy will be in recession by the end of the year."
The Council of Mortgage Lenders said 47,000 loans were made to home buyers in July, the same as in June but 51% fewer than a year ago. First-time buyers were squeezed out of the market as lenders demanded deposits of 15%.
Meanwhile, the Royal Institution of Chartered Surveyors said sales were at the lowest level for 30 years in August with some estate agents selling fewer than one home per week.
It cast a shadow over the City following yesterday's bullish reaction to the US government's bailout of mortgage finance giants Fannie Mae and Freddie Mac.
The FTSE 100 index closed up more than 200 points last night even after trading was halted for seven hours due to a technical glitch which angered London Stock Exchange chief executive Dame Clara Furse.
Reader views (3)
Can someone explain to me the price movements of oil, if not in the context of speculative and intricate manipulation. How can the market for 3 month forward oil not be manipulated. World demand has not surely risen 100% in a year and fallen by 40% in a few months. If rising oil and commodity prices are cited as the reason not to cut interest rates, then surely recent falls provide the excuse to cut rates to give stimulus to global economies..please explain.
- Michael, Switzerland
Is it any wonder that markets continue to slide? Given a dire economic outlook, trillions of dollars of debt worldwide and the spluge that we have all been on for the last decade. Collectively the world has serious financial indigestion!!! The US Govt had no choice but to take over Fannie & Freddie. What should be re-considered is the viability of their whole whole securitsation model, why let banks off the hook by taking their mortgages off their books so that they can start the whole lending process again (largely unchecked). Mortgages should be seen by banks as a long term commitment, requiring long term funding, decent margins and lent only to those with sufficient minimum deposit. This is the only rational course for banks and individuals entering into a long term arrangement. A mortgage is not a "right" available to all whatever their ability to pay!
- Simon, Oxford
"Will make recession more likely"... wake up and smell the coffee! Germany is already experiencing negative GDP growth [-1% in last reported quarter], The City is in the toilet, housing ditto, ...no help from high base rates, taxes through the roof, .. last one turn out the lights!
- James, New Malden, Surrey
