Thursday, 20 November 2008

Markets hit new lows on global job losses

LONDON/WASHINGTON (Reuters) - Fears of a deep, long global recession intensified on Thursday as markets hit new lows in alarm at reports of record U.S. job losses, oil prices plunging below $50 a barrel and worry that U.S. automakers would not get a bailout from Washington.

World economic woes prompted Switzerland's central bank to make a surprise one percentage-point interest rate cut and analysts said the poor U.S. jobs picture almost guaranteed a Federal Reserve Board rate cut at its next meeting on December 16.

CNBC reported Saudi Prince Alwaleed bin Talal planned to boost his stake in Citigroup back to 5 percent. The U.S. financial giant is subject to serious concern over heavy losses and even its very survival. Its shares plunged 20 percent on Thursday after falling 23 percent on Wednesday.

Global equity markets sold off again, with Wall Street stocks tanking for a second consecutive day, although the Swiss and Citi news pared back fears of even deeper falls.

The International Monetary Fund stepped in to bail out troubled Iceland, leading a $10.2 billion help package, and was set to make as much as $40 billion available to Turkey.

The deepening recession also ate into companies' outlooks. Prospects for a bailout of U.S. automakers faded and General Motors underlined its troubles by announcing a two-month production shutdown in Thailand. Its shares lost another 30 percent in early trading on the New York Stock Exchange.

On the jobs front, the U.S. government reported the number of workers making new claims for jobless benefits last week surged to the highest in 16 years, adding to fears of a deep recession. U.S. Senate Democratic Leader Harry Reid said lawmakers may consider on Thursday extending jobless benefits.

French carmaker PSA Peugeot Citroen said it would cut 2,700 jobs, Anglo-Swedish drugmaker AstraZeneca saw 1,400 losses over coming years, and engine maker Roll-Royce expects up to 2,000 job cuts next year.

Planned layoffs since September at non-financial companies worldwide total at least 172,000. To that can be added 89,500 in financial sector losses.

All three major U.S. stock indices fell at the opening, with the Dow Jones industrial average at its lowest since March 2003 and the Standard & Poor's 500 down more than 2.5 percent, it lowest since October 2002.

World stocks tumbled 8.7 percent to 5-1/2-year lows with volatile emerging market equities down 5.4 percent. European shares lost 4.9 percent and Japanese stocks plunged nearly 7 percent.

In what would normally be a good sign for consumers and markets but now signals weaker global growth, U.S. crude futures fell over 5 percent to just below $50 a barrel for the first time since January 18, 2007.


Leading economies will likely be in recession for around a year, a Reuters poll of around 250 economists showed. The survey across the Group of Seven nations showed economies faced recession for as much as five quarters.

"All developed economies will contract in 2009. It's the worst we have had in a century. But to say it's going to look like 1929 again for all these economies is a bit excessive, it's too pessimistic," said Marco Annunziata, chief economist at UniCredit in London.

The Federal Reserve said on Wednesday the U.S. economy would contract through the first half of 2009.

"No end in sight," ING economists said in a note on Thursday, a sentiment widely shared by investors.

Japan's exports to Asia fell in October for the first time since 2002, suggesting the fallout from the credit crisis has spread to neighbors such as China. Shipments to Asia had previously cushioned the impact on Japanese exports of weakening demand from the United States and Europe. But data Thursday showed they fell 4 percent from a year earlier.

"The fall in exports to Asia reflects that their economies are also taking a blow from weakness in developed economies," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.


With investors looking increasingly to governments and other authorities to stop the rot, the IMF moved to prop up both Iceland and Turkey. The Fund approved a $2.1 billion loan for Iceland, battered by a severe banking crisis, as part of a $10.2 billion package.

"The whole IMF package, which includes British and Dutch loans to the Icelandic deposit guarantee agency, is about $10.2 billion, out of which the Nordic countries' share is about a quarter," Finland Finance Ministry Under-Secretary Martti Hetemaki told Reuters.

The IMF said Iceland's economy would likely shrink 9.6 percent next year and unemployment quadruple to 5.7 percent.

Sources in Turkey told Reuters the IMF was ready to agree a precautionary standby agreement of $20 billion to $40 billion.


Prime Minister Vladimir Putin said Russia would not allow the global financial crisis to capsize its economy and announced a $20 billion stimulus package and help for people who lose out in the downturn.

European Central Bank Executive Board member Lorenzo Bini Smaghi told a Portuguese newspaper more interest rate cuts by the European Central Bank were possible.

Other official help looked less certain. Chances for a $25 billion bailout of the U.S. auto industry faded further, with little expectation that Democratic leaders in Congress will support a compromise that hinges on negotiations supported by Republicans and the "lame-duck" White House.

"I won't say it's completely over," Sen. Robert Bennett, a Utah Republican, said in reference to the chances of lawmakers striking a deal on aid for General Motors Corp, Ford Motor Co and Chrysler LLC that could pass.

"I'm still having conversations with people. But it doesn't look good.

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