Slow growth figures unnerve markets

SLOW growth figures out of the US and pretty poor economic data out of Germany unnerved markets somewhat yesterday and all of them were hit, with the exception of the Nasdaq.

Trading was thin but the low economic growth figure from the US and continuing weak jobless figures did enough to push most indices lower during the course of the day.

The ISEQ Index in Dublin was down 1% while in the UK the FTSE was off 1.5% which was, over £30 billion in value gone in a single day’s trading.

By late afternoon the Dow Jones was down by nearly 1% while the S&P 500 index was off 0.3%.The Nasdaq rose 1.33% but it is coming off a very low base and may have benefited from suggestions that companies in the sector are beginning to restock.

Overall as the year rolls on analysts are becoming more optimistic despite the stop go nature of the recovery in the US.

Some analysts said the performance of markets globally yesterday reflected fears about the exact nature of the US recovery and lingering concerns about a double dip recession.

Concerns also that any attack on Iraq could push oil prices up to $35 a barrel is casting a further cloud over market sentiment.

Eoin Fahey, chief economist, KBC Asset Management said the overall bias is shifting to the more positive end of the economic spectrum in the case of the US.

That sentiment was helped when the price of Brent crude fell to $27 a barrel yesterday following the OPEC statement that it will maintain oil supplies in the months ahead.

But IIB chief economist Austin Hughes fears that any attack on Iraq or the potential threat of such an attack, has the capacity to undermine the US recovery.

If the price of oil is pushed up to $35 per barrel then the economic recovery in the US. already looking pretty fragile, going on the new economic figures, could be undermined leaving us with very low growth, he warned.

AIB economists have ruled out a double dip recession however despite the uncertainty of the figures out of the US and the over hang of a war on Iraq.

Mr Fahey says the Iraq war issue is a 2003 story and he says the recovery in the US will be maintained even if growth is at a lower rate than earlier predictions.

Today in the US Alan Greenspan will address a major conference of bankers and key journalists.

His subject matter is still unknown, but if he deals with the economy and says it is looking reasonably robust his comments could do one of two things.

Investors could take heart or they could equally decide that the Fed chairman is out of touch with how parlous a state the economy is actually in at this point in time.

That scenario is a measure of how the markets are right now.

But on the plus side they have gained in each of the past five weeks having hit a low on 24 July.

Despite the rickety nature of the recovery the markets are still in positive territory since the 24 July low.

Most analysts think the worst is actually over for the markets, but the nervousness that surrounds the US and its intentions over Iraq still has markets in somewhat of a tizzy.