Share prices on both sides of Atlantic in decline
The ISEQ Index of Irish shares fell 1.9%, wiping 1.13 billion, while billions were wiped off shares in London, where the FTSE 100 share index fell by 3%. The decision of the European Central Bank to hold interests rates, US President George Bush's demand that the UN forces Iraqi President Saddam Hussein to get rid of his weapons of mass destruction, and Federal Reserve chairman Alan Greenspan's declaration that a US economic recovery faced very significant challenges, held shares back on both sides of the Atlantic.
"To date, the economy appears to have withstood this set of blows well, although the depressing effects still linger and continue to influence, in particular, the federal budget outlook," Mr Greenspan said in testimony prepared for delivery before the House of Representatives Budget Committee.
He warned a return to large and extended deficit spending by the Government could risk driving interest rates higher and imperil economic fundamentals.
Ulster Bank financial markets economist Niall Dunne points to a surge of bad economic news from the US a rise in the number of new people signing on for unemployment assistance for the first time to 426,000; unemployment looks set to rise again, and there is a good chance it will break above 6% and a deficit of $129.96 billion of imports over exports.
"This means that in the three months of Q2, the US imported almost $130 billion more worth of goods than it exported. Hardly inspiring for US manufacturers looking ahead. They need a weaker US dollar," he said.
"This deficit is now reaching dangerous levels levels which in other countries suffering similar difficulties have caused their currencies to collapse. Now the question is how will this be funded?
"The US has relied on foreign investors purchasing US dollars (to pay for US assets) over the past few years to stop the deficit from expanding, but while foreign appetite for US assets may be stabilising at present, it certainly isn't growing, so the deficit can't be reduced that way," states Mr Dunne.
He said Europeans had better hope the US dollar doesn't collapse, otherwise exports to the eurozone's biggest export partner will grind to a halt and harm growth. "The only reason that's supporting the US dollar at present is simple. If you are bearish on the US dollar now, and sell it, where do you place your funds?" Mr Dunne believes eurozone prospects are inextricably linked to the economic fortunes of the US at present, but says if an unaffordable war goes ahead, largely funded by the US, investors might not be so discriminating in looking for a safe haven away from the US.
Dead cat bounce is a quick, moderate rise in the price of a stock following a precipitous decline.
