Markets suffer further heavy falls

HEAVY declines were again the main feature of international markets yesterday, with European exchanges falling to their lowest levels in almost two years.

Rising expectations that the US may not regain its triple-A credit rating any time soon and could suffer further downgrades in the coming months continued to spook investors.

While yesterday was chiefly about how the markets would react to Standard & Poor’s (S&P) downgrading the US credit rating on Friday, S&P’s own follow-up move — to downgrade the credit rating of American mortgage giants, Fannie Mae and Freddie Mac, due to their heavy reliance on the US Government — further added to market turmoil.

The US debt crisis was one of the main drivers of last week’s downward spiral on the markets and yesterday’s uncertainty for the immediate health of the world’s largest economy didn’t help trading.

Furthermore, while rival credit rating agency Moody’s has — in the last week — stuck with its ‘AAA’ rating for the US, after having originally put the country on a ‘downgrade review’, it warned yesterday that it might still follow S&P’s downgrading lead if the American Government’s planned measures to reduce the country’s budget deficit don’t prove to be credible.

Moody’s said that last week’s plans by the US to cut its budget deficit were positive for the country’s credit standing, but wouldn’t be enough to keep its rating on a stable footing.

Most significant international bourses continued to fall yesterday — some with added negative milestones attached. For instance, the 3.4% — 178 point — fall on London’s FTSE marked the first time in the exchange’s history that it registered a 100+point fall in four consecutive trading days.

The CAC-40 index in Paris fell by 4.7%, while Frankfurt’s DAX exchange was down by 5%. The day started with both Tokyo and Hong Kong falling by over 2% on Friday’s close, and continued with those further falls in Europe and opening declines on Wall Street.

Early gains were quickly eroded in Dublin, as the ISEQ slumped by 4.4%, or 111 points, to close at 2,395 points — effectively wiping another €1bn off the combined value of Irish shares.