Monday, October 06, 2008

World markets slump again

Campbell Soup stocks have risen sharply in 2008

Oil has fallen to below $90 a barrel as economic uncertainty continues. Following Friday’s rescue package which was passed as Law by President Bush there was optimism that markets might pick up. However, even a rise in the Dow on Friday quickly slumped before the closing bell. In Europe several moves have been made to protect the assets of savers. A number of governments have guaranteed assets and have effectively forced other governments to react. Ireland had already guaranteed savings held in Irish banks prompting many to poor savings into their banks. In Germany it emerged that the government had hatched a plan to offer a 100% guarantee of its private bank deposits. This has unnerved the UK treasury which is looking into the details of the plan [BBC]. In Britain investors are only guaranteed up to £50,000. This itself was increased from £35,000 after much public and political pressure. BBC Business Editor Robert Preston said the UK may be forced to react. "If it turns out that [Germany] are guaranteeing all retail deposits, then I think it is inevitable that we will have to follow suit, because money leaks across borders like a sieve in these globalised markets. There is a risk money would flow from the UK to Germany if we didn't offer the same kind of protection."

Richard Lambert, director general of the Confederation of British Industry, warned that such offers of security would create further financial instability around the world. He suggested on BBC’s Question Time last week that moves by the Irish might lead to others following suit and creating conditions similar to what preceded the Great Depression. “I think the decision by the Irish to give a full guarantee to all their depositors was an outrage, If you think back in history, if you go back to the 1930‘s, what turned the crash into the depression was that politicians around the world put up trade barriers, they went for economic nationalism; we’ll protect ourselves and beggar thy neighbours, we don’t care. I think it was a serious anti-European and unfriendly act” Lambert said.

Asian stocks fell sharply dropping between 3 and 5% on Monday and European markets have also seen unstable early trading. The FTSE, Dax and Cac 40 all saw significant falls of around 5 and 6% down [BBC / CNN].

In this turbulent market, no-one is feeling confident. Consumer confidence is low and spending on the high street is falling. Nick Hood of Begbies Traynor has warned around 323 retail business may go to the wall early next year as financial pressures mount. The companies are on a so called “critical watch list” and many have been propped up by Icelandic financial institutions. Iceland is already seeing high inflation and soaring interest rates and as the third biggest bank was this week nationalised. Some believe the worsening financial meltdown may bring about the kind of economic nationalism described by CBI’s Richard Lambert. All trading on financial stocks were suspended in Iceland half way through Monday adding to the concerns [BBC].

With rising fuel bills and the general cost of living, British families have been forced to tighten their belts. Many people are also concerned for their jobs as more companies lay off staff. In the UK unemployment already stands at a nine year high of some 5.5%. Luxury goods are off the shopping list and today it was announced that new car sales were down 21.2% in September, the 5th consecutive monthly fall. With petrol still way above one pound a litre, many are also using their cars only for necessary journeys. There have been a few stocks on the rise. One of the most notable stocks is that of Campbell’s Soup which has risen significantly over the last 9 months. It was also the only member of the S&P 500 to escape the market drop in share values. Perhaps some are cynically looking at the possible return of the soup kitchens seen in the 1930’s. The future for millions, both with debt they are unable to repay, and those with savings that are potentially unsafe, is far from clear.

No comments: