Global markets fail to sustain gains

GLOBAL stock markets turned tail again yesterday losing much of Tuesday’s gains as the euphoria triggered by the 0.5% cut in US interest rates failed to sustain investor confidence in the world’s stock markets.

After Tuesday’s splurge which saw Irish shares gain over €4 billion they lost close to €3bn of that figure again yesterday as doubts about the impact of the credit crunch and serious worries about the Irish economy in particular hit investor sentiment.

Again the banks were the target of significant share sell-offs with Irish Life & Permanent down 1.52% and AIB off by more than 3% as worries about the financial sector’s exposure to the construction sector continue to undermine sentiment towards the banks and construction companies.

Other sectors also felt the backlash of nervous markets yesterday and the Kerry Group, which is a big player in the US food ingredients market saw over 3% knocked off its share price on the day. That contrasted with 0.47% in the share price of Glanbia which is heavily involved in the US dairy sector.

Economists warned it would take more than one cut from the US central bank of 0.5% to calm the huge concern among banks about each other’s potential exposure to the high risk housing sector in the US.

Markets will require a number of rate cuts from key central banks in the months ahead if the market turmoil is to cease. It is also critical that the banking sector makes clear their exposure levels to the subprime lending sector if this issue is to resolve itself any time soon, Dermot O’Leary, chief economist, Goodbody Stockbrokers said.

Comments yesterday also by the chairman of the US Federal Reserve Board, Ben Bernanke, that the US was facing an economic slow down also upset investors.

Dermot O’Brien, chief economist, NCB Stockbrokers, said problems in the US were so serious that “they are hardly likely to be adequately addressed by just one more cut of 0.25% from the Fed in the months ahead. The Fed will have to implement a series of cuts to address the current loss of confidence in the US while the next move in ECB rates will be down. That could happen before year end.”

Meanwhile, the dollar also lost further ground as expectations of further US rate cuts from the Fed saw the euro hit new record highs.

The dollar fell to its lowest point since the euro’s launch in 1999 as the euro rose above $1.40m for the first time. The dollar was further undermined by reports that Saudi Arabia might break its currency’s link to the dollar, but the real problem is the threat of further interest rate cuts in the US in the month ahead which analysts believe are now inevitable.