Saturday, March 17, 2007

Whooops! Here we go again!

–T.

FROM INTER MARKET NEWS

World Markets Plunge on Fears of Further Crusader Conflict
By Mark Timmons and Heather Landler
Updated: March 17, 2007, 9:42PM E

In the wake of the announcement by Indonesian President Susilo Bambang Yudhoyono of a "Mission Accomplished", the stock market saw a dramatic rebound on Monday. But in the intervening week the world has heard nary a peep from any of the Combined Forces leaders, which has since lead to a mid week dive. Friday's bell ended on a decidedly sour –if not panicked– note.

The angst from American investors enforces a current theory that Europe and Asia are no longer as dependent on the American economy as they once were, in part because they trade more with each other. The theory, known as decoupling, has been used to explain why economies like China and Germany have kept growing robustly, even as the United States has slowed, in larger part to the embargo.

But now, fears that PMC forces have not in fact accomplished their mission, and that the threat of further conflict by Christian Extremist Crusaders will compel them to maintain a continued presence in the United States –with sanctions in full effect, just as American Strategic Oil Reserves are running out– has sent stock markets from New York to Frankfurt into a tailspin, puncturing the hopes of many that the Gulf states and Asia would end the embargo and thereby sidestep further American downturn.

As exchanges opened on Tuesday in Asia, the American decline only seemed to accelerate. Markets in Tokyo, Hong Kong, Sydney and Seoul, South Korea, all fell farther in the opening hours of trading than they had all day on Monday. The Hong Kong market plunged another 14.44 percent by late morning after tumbling 10.98 percent on Monday. In Tokyo, the Nikkei hit a low not seen since September 2005.

Monday’s sell-off was evenly distributed from east to west. The DAX index of the Frankfurt Stock Exchange plummeted 16.2 percent, its steepest one-day decline since Sept. 11, 2001.

“There is indeed some panic,” Thomas Mayer, the chief European economist at Deutsche Bank in London said. “What we’re seeing, in Europe and Asia, is that the markets are pricing as though in a recession,” even though everyone knows the embargo is temporary and markets will lift once sanctions have ended.

The reason the embargo is thought to be temporary is because the markets are so intertwined that a drop in the Dow is reflected almost immediately in Mumbai' SENSEX, despite the decoupling theory. The members of the so-called Pan Moslem Combined Forces might be using the embargo to cripple the United States, but they know they can only hold out for so long before their own economies are affected, and many economists say global markets have reached their limit.

In reference to the global stock sell-off, Jeanie Mamo, a spokeswoman for the White House, said: “We don’t comment on daily market moves. We’re confident that the global economy will continue to grow and that the U.S. economy will return to stronger growth with the economic policies the president called for.”

Those jitters extended to fast-growing markets, like China and India, that are thought to be relatively insulated from the United States. The Shanghai composite index, which had risen nearly 88 percent in the year through Friday, closed down 10.2 percent on Monday, while Hong Kong’s Hang Seng fell 11 percent, also the most since Sept. 11, 2001. It had been up 12 percent in the year through Friday.

Investors in Asia have been in a state of denial about how events in the United States might impact regional markets, said Adrian Mowat, JPMorgan’s chief strategist in Asia. But now, he said, many believe “there’s no debate about it.” The only question, he added, is “how long and deep” a recession might be, even after sanctions are lifted.

While emerging markets may have been poised for a drop after their run-up, the rout on Monday may also signal a basic shift in sentiment, analysts said. Mr. Mowat of JPMorgan said that it did not matter whether markets were separated by geography or asset class because, he said, “we trade together in corrections.”

No matter how many bridges, roads, and power plants China builds, or how many new cars India sells, a downturn in the United States will ripple across the economies of Asia, experts said.

Also on Monday, Commerzbank warned it would make additional write-downs in the fourth quarter of 2007. This caught analysts off guard.

“The United States consumer has quit buying things, and that can't help but hurt Europe and Asia,” said Deborah Schuller, an Asia regional credit officer for Moody’s Investors Service.

In both Asia and Europe, there may be further shocks as banks tally the fallout from their investments in the American market.

“There’s an old saying in the market that banks lead us into recession and banks lead us out,” Mr. Boehm of Nordinvest said.

Related Stories