Our market could be down more than 2% at the opening today in the wake of Wall Street's Black Monday echo.
The Share Price Index was suggesting a 155 point fall here on the ASX 200 and All Ords after the Dow shed 366 points on the 20th anniversary of the 1987 crash in New York on Friday.
But there's more to Friday's sharp fall in the US than just a faint memory of a 22% drop in the Dow.
To replicate that crash, the Dow would have to shed more than 3200 points: in today's more sophisticated market, that is not going to happen.
The nervousness and questioning increasingly evident in the US market for the past two weeks finally boiled over Friday, completely eliminating any gains since the US Fed's 0.50% rate cut on September 18.
The concerns are that the subprime mortgage mess is worsening, the US housing sector is sliding deeper into a prolonged recession, the credit market freeze is still around, US corporate earnings are under-performing so far in the present third quarter reporting season, oil prices have risen to record levels and the US dollar's value continues to fall, especially against the euro.
Analysts say that even if third quarter earnings over the rest of the season (the next two weeks or so) kick up a few per cent, that will still mean the three months to September 2007, will have produced the worst quarterly figures growth in five years. As one fund manager said on Bloomberg: "the days of thinking automatically of double digit profit rises are over".
All this has lifted the chances of a rate cut (0.25%) at the end of the month from the Fed, which will be a sign that the US economy's woes are worse than they were in mid September when that bigger than forecast cut was aimed at helping ease the liquidity freeze and the bottom lines of Wall Street.
The toll of losses being reported by leading banks and other financials didn't stop last week, adding to the unease, even though some of the losses had been forecast/expected.
Once again the best indicator of sentiment is what's happening in the huge US Government securities market.
There two year US Treasuries had their largest weekly increase since the September 11 as bonds had their fifth positive day.
The losses and lower earnings at Citigroup, Bank America and Wachovia, plus two structured investment vehicles declaring that they can't meet their debts, pushed bond yields lower.
There's nothing like a bit of safety in US Treasuries, even if it's the weak greenback.
Nothing else has the certainty and depth of liquidity as the US bond market does for the nervy investor seeking a safe haven.
London-based Cheyne Finance and IKB Deutsche Industriebank AG's Rhinebridge Plc defaulted on more than $US7 billion of debt. This had been expected but the reality is more dramatic than the possibility.
The yield on the two-year bond fell 0.14% on Friday to 3.78%. That's a fall of 0.46% last week alone. The yield on the US 3 month Treasury note tumbled by around 0.56% last week.
Friday's meeting of officials from the so-called Group of Seven economic powers (plus assorted supranational groups such as The World Bank and the IMF) said much but came up with nothing to arrest the slide in the dollar or reassure markets.
The S&P?500 shed 3.9% in value on Friday to end at 1,500.63, its worst performance since late July, the Dow did a bit better only losing 2.64% to 13,522 (or 366 points) and NASDAQ lost 2.74% to 2725.16 (or 74 points).
The S&P 500 fell 3.9% last week, the Dow 4.1% and NASDAQ 2.9%.
Our market was off around half a per cent because of Friday's 1 per cent fall. The All Ords shed 0.5% to end at 6723.
The Dow is still up 8.5% for the year so far, while the S&P 500 is up 5.8% and NASDAQ is up 12.8%.
The reports from Citigroup, Bank of America, Wachovia Corp and JPMorgan Chase (which was the best of the four) pushed financial shares to the worst performance since 2002, even worse than in August-early September.
Asian stocks had their biggest weekly drop in two months last week led by financial stocks, on concern losses from the worst US housing slump since 1991 will spread.
Banks through Asia (including Westpac, down a sharp 3.2% on Friday), all fell after those worse than forecast US bank profits and losses.
The Morgan Stanley Capital International Asia-Pacific Index fell 1.4% to 165.77 last week, its first fall since the five days ended Sept. 14.
Markets in Australia, China, Malaysia, the Philippines, Singapore, South Korea, Thailand and Vietnam all fell. The Hang Seng Index in Hong Kong surpassed 30,000 for the first time and markets in Indonesia, New Zealand, Pakistan, Sri Lanka and Taiwan rose.
