Thursday, August 16, 2007

World markets 'in freefall'

A slump in world markets has seen millions of pounds wiped off value of UK shares. Sky’s Business Editor Michael Wilson said we should be “very worried” especially as regards the fall in the value of pensions. The BBC described the market decline as being in freefall.
The slump started in the US last week with nearly 170 points being lost on the Dow Jones index in just one day. The underlying fear relates to the collapse of the so-called sub-prime mortgage market in the US. In the past five years, extraordinarily low interest rates in the US have led banks and other financial institutions to lend substantial sums of money to people with poor or no credit histories. However, as interest rates have risen, so have repossessions. The US housing market has collapsed and the banks have found themselves left with many bad debts. One reason why this has had such a large worldwide impact is due to globalization. Globalization has meant that much of this mortgage debt has been sliced up into small pieces, repackaged as "collaterised mortgage obligations" and sold on to financial institutions and individual investors around the world.
Today the Dow Jones lost over 160 points. The FTSE 100 dropped 4.1% today closing at 5,859 the biggest drop in a single day for nearly ten years [BBC / CNN].

Asian markets have also seen a dramatic downturn. The China Daily reported that the Shanghai composite dropped 2.14% or 104 points to a close of 4765.44. The Shenzhen Composite faired little better after it fell 1.65% to 16,053.1 points.

Sinopec, China's largest oil refiner, fell 3.43% to stand at ¥14.90 per share. In the US crude oil dropped $2 to $71.30 as the credit fears pounded global financial markets and as a storm threat to U.S. Gulf refineries and rigs receded.
There are fears there will be a drop in consumer spending and further rises in inflation. Only the next few days in trading with give a clearer picture. However, there is likely to be further losses before any recovery develops.

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