Stock Markets Struggling Continues

By Stewart Douglas

Concerns spread over the chance of lower consumer spending due to possible higher rates that will hit takeover deals and corporate profits.

European markets were also hitting new lows, London’s share index closed down for another day, at its lowest level since mid march.

It has been warned that market values could stay volatile over the coming weeks.

“I think you’ve got bargain hunters out there for sure and I think you’ve got some people who are still scared,” said analyst Randy Frederic of Charles Schwab & Co.

“We’re seeing the convergence of a whole host of sort of unrelated or only slightly related issues,” he explained.

Dow Jones Industrial average was 208.1 points, 1.5% lower at 13,265.47 by the end of trading in New York.

The worst weekly decline in nearly five years, the index has lost 4.2% since Monday.

S&P 500 was 1.6% lower while Nasdaq was 1.4% lower than close yesterday.

FTSE 100 index of leading shares on the London market was 36 points, or 0.6% lower at 6215.20. France’s Cac-40 and Germany’s Dax also declined.

Japan’s Nikkei closed down 418.28 points, 2.4%, at 17,283.81. Hong Kong’s leading shares index closed 2.7% lower.

In the past companies, consumers and financial markets have all gained and benefited from the low interest rates and ready availability of credit. These benefits have helped energize a growth in spending, corporate takeovers, and house price inflation.

But now, these interest rates have begun to rise and continue to stay higher as central banks attempt to pull in inflation.

A main factor of the share price rise in the recent year has been fueled by the takeover growth, with individual equity bidders thrusting up the worth of the firms they target.

A majority of the money paying for these deals is borrowed from banks. These banks have been pushing off a large part of the loans by selling them to others.

But because they have suffered losses in the US sub-prime mortgage market, investors are less trusting on buying the loans from these banks. Thus removing the credit required for takeovers and lowering the share prices.

“When there’s uncertainty about financing, then private equity is not so quick to make deals,” said Elliot Spar of Ryan Beck & Co.
“We’ve had this massive change in investor expectations in terms of new deal flow,” said Fred Dickson of D.A Davidson & Co.