US shares had their largest weekly fall in almost four months last week as investors rediscovered the real US economy and realised the credit crunch and housing slump had not somehow been vanquished by the rescue of Bear Stearns in March.
And that will be bad news for market sentiment here were a 1% fall has been tipped on the futures market.
Worryingly, the big drivers of Friday’s 146 point fall on the Dow were the likes of Lehman Brothers, Morgan Stanley and Merrill Lynch; the big, troubled investment banks that had stabilised in the wake of the rescue of Bear Stearns by the US Federal Reserve. Goldman Sachs dropped for a ninth day in a row.
Ford fell for a six straight day after it said it was recasting its business model and wouldn’t be back in profit until after 2009 and General Motors fell to a 26 year low after it revealed it would have $US2 billion in extra costs from a long strike that is in the process of being settled at a key part supplier.
Oil surpassed $132 again Friday, sales of previously-owned homes matched a record low in April, and now account for more than 11 months of annual demand in the US, and shares in leading consumer companies had a bad week with the second-biggest weekly drop this year.
On Friday the Dow shed 1.2%; the Standard & Poor’s 500 1.3% and Nasdaq 0.8%.
Over the week, the S&P 500 fell 3.5% for the steepest decline since the first week of February; the Dow dropped 3.9% and Nasdaq lost 3.3%
The S&P 500, which got within a couple of points of going positive for the first time this year early last week, ended up at the same level it was at the end of the week ended April 11.
All US financial markets are closed tonight for Memorial Day, while UK markets are also closed tonight as well.
So investors will have a respite from the uncertainty of late last week in the wake of the Fed’s decision downgrading of 2008 and 09 economic forecasts and its signal that rate cutting had stopped and inflation would rise over the next few months.
The surge of oil past $US135 a barrel added to the unease and the strength of the Fed’s forecasts. Friday’s release of the latest existing home sales figures from the US national real estate agents group lifted the level of concern.
While the number of existing-home sales dropped 1% in the month, compared to market estimates of a 1.6% fall, the number of unsold single-family homes rose to the highest level in more than two decades. The unsold stockpile of houses across the US is now equal to 11.2 months of sales.
The annual sales rate in April’s of 4.89 million (which included single-family, town homes, condominiums and co-ops) was 17.5% below the 5.93 million units rate in April 2007 and compares to the peak rate annual rate achieved in September 2005 of 7.2 million homes.
In reality America need not see another new of existing house added to that unsold stockpile for the rest of this year to make a significant dent in the figure. But with foreclosures still grinding on by the thousands each week, that’s not going to happen soon.
More worrying was the drop in US house prices as measured by the figures from the National realtors group.
The median price of a home sold during the month fell to $202,300, down 8% from $219,900 a year ago. This week we get the influential S&P Case/Schiller 10 and 20 metro area house price index figures for March. The annual slide in the year to February was 12.7% for the 20 metro area Index, the largest so far recorded.
European, Asian and the Aussie market fell last week.
Australia was off more than 2% in the wake of the Fed’s signal on rates and the record oil prices.
European shares had their biggest weekly decline in more than two months after that rise in oil prices hurt car makers, retailers and airlines.
Europe’s Dow Jones Stoxx 600 Index 3.3% to 319.02, the steepest weekly decline since March. That took the fall so far this year to 13 %.
National benchmarks dropped in all 18 western European markets except Norway. Germany’s Dax lost 3%, France’s CAC 40 fell 2.8% and the London’s FTSE 100 sank 3.4%.
Asian shares fell for a fourth day Friday, leading to the biggest weekly decline since March.
China, Japan and Australia saw falls.
The MSCI Asia Pacific Index fell Friday and was down 2.2% for the week.
Most of Asia’s benchmark indexes lost ground: the Karachi Stock Exchange 100 Index shed 4.8% while Vietnam’s main stock measure for a 15th day. Tokyo’s Nikkei rose Friday but lost 1.5% over the week.
China’s CSI 300 Index also fell, making last week the biggest weekly decline since April 18.
The Index tracks Yuan-denominated A shares listed on China’s two exchanges and it lost 1% Friday to be down 6.6% over the week.
After our 2% fall last week, the SPI was signaling a 65 point, or 1.1% drop at the opening today. But with the US and UK closed, trading is likely to be a little circumspect without a foreign lead to trade to tonight.
But the Babcock and Brown Power situation is one that will need to be watched because any further weakness in the price of the stapled securities will run off on its manager, the investment bank, Babcock and Brown; and in turn hit the prices of other financial groups.
That weakness in New York Friday in the prices of
