Finance

Home page

Finance

World exchanges go down

08 August 2011 14:02 (UTC +04:00)

The downgrade of the U.S. credit rating Friday fuelled concern the economic slowdown will worsen. Oil slumped as well early today, while gold rallied to a record.

Stock markets in both Canada and the U.S. have lost more than 10 per cent from the heights reached in the spring.

A rebound in the S&P 500 faded on Friday even before S&P announced the one-level reduction to AA+, as concern grew the downgrade’s ripple effects will drag on markets already reeling from a slowdown in economic indicators.

The Group of Seven nations said late Sunday they will take every action necessary to stabilize financial markets.

Members will inject liquidity as needed and act against disorderly currency moves if necessary, Japanese Finance Minister Yoshihiko Noda said.

"The once-unthinkable loss of the AAA rating will constitute a further hit to already fragile business and consumer confidence."

About $5.4 trillion in global equity value has been erased since July 26, according to Bloomberg data, after Europe’s debt crisis worsened, reports on U.S. manufacturing and consumer spending showed the world’s largest economy was slowing and a political impasse over the budget deficit brought the American government to the brink of default.

Investors rushed over the weekend to assess the potential global fallout from the U.S. losing its AAA rating at S&P for the first time.

"Investors should not panic," Charles Reinhard, the New Yorkbased deputy chief investment officer at Morgan Stanley Smith Barney LLC, which oversees $1.7 trillion, said in a telephone interview. "The downgrade is a disappointment, but it will be manageable. Underlying all of this we still have attractive equity valuations and good old-fashioned profit growth."
Societe Generale SA predicted "shock and already shaken confidence in an illiquid market. Brace for turmoil in the next few days or weeks," the French bank’s head of North American research, New Yorkbased Stephen Gallagher, wrote in a note Sunday.

BlackRock Inc., the world’s largest asset manager, issued a statement saying it has been preparing for the downgrade for a month and will not need to do any "forced selling of securities." The OCC, which clears and settles all trades on U.S. options exchanges, said in a statement it has "no current plans" to adjust valuations for Treasuries used as collateral.

The U.S. Treasury Department said there is "no justifiable rationale" for S&P’s move as global finance ministry officials prepared responses to the historic announcement. S&P’s officials stood by their decision and laid blame on a political system that failed to adequately address deficit reduction in the compromise law that President Barack Obama signed Aug. 2 to avert a default.