Cars, planes, retailing, engineering, food and building groups around the world cut earnings forecasts, production or jobs on Friday in one of the gloomiest days of the year so far for earnings and stockmarket confidence.
And there will be more of the same this week (See below).
The announcements from Australia to Brazil, Japan, North America and Europe, are definite signs of the rapidly approaching recession that is going to crunch non-bank earnings 40% or more from current levels, according to equity strategists at Citigroup in London.
The Australian dollar was hammered on Friday, shedding more than 12% in value against the yen and 8% against the US dollar in the biggest single one day fall since floating back in 1983.
It was for no apparent reason.
Citigroup’s team said in a note to global clients last week that ‘History suggests the severity of the coming economic downturn should be greater than normal.
"Recessions following previous periods of financial stress have lasted twice as long as normal. The lost economic output is also greater.
"Earnings Downturn – More severe economic weakness will likely drive a deeper and longer global corporate earnings downturn.
"We believe we are in the early stages of an earnings recession that could last for at least 2 years, with ROEs declining to 8% and EPS falling by 40-50%.
"Global equity valuations suggest investors have already discounted almost all of the expected decline in earnings. Current valuations are back down to 1970s averages."
"Economic growth is slowing in emerging economies as well. In Asia Pacific our economists believe region-wide GDP growth in 2009 will be the slowest in eight years.
"However, given the current financial crisis is not emanating from their backyard this time, growth should be comfortably above the depths achieved during the Asian crisis.
"The outlook is darker for other emerging economies more dependent on capital inflows."
Currencies lost ground against the US dollar and/or the yen: the Aussie dollar fell 8% and 12% or more against both currencies respectively on Friday. Copper, oil and most other commodities fell. Only nickel rose on the back of production cuts by the giant Vale group of Brazil, the world’s second biggest producer.
There was evidence hedge funds accounted for some of the turmoil on Friday. T
hey are being forced to sell their stocks, bonds and other instruments to pay off their investors and lenders. Beyond that, investors are increasingly convinced that the global economy is headed for a long, painful recession.
The Citadel hedge fund group reassured investors at the weekend that it had enough liquidity and that Fed inspectors were not talking to it.
But nerves are taut in the hedge fund industry as investors recall their funds, billions of dollars in investments are sold off and the stability of more and more groups is being questioned (around $US200 billion has been wiped off the value of funds in the past few months and a couple of hundred funds of varying types have gone bust, been wound up or cut back business to where they are no longer significant players).
The flight to safety is hurting once-mighty currencies like Britain’s pound. On Friday, worries about how the financial crisis would affect Britain’s economy caused the pound to lose 8c against the dollar, falling to $1.53.
On Wall Street, the Dow Jones Industrial Average slumped 312.30 points, or 3.6% to 8,378.95, in a volatile session that saw the blue-chip index down as much as 500% at one stage.
The Australian share market wiped $30 billion from its value to end the week at its lowest level in almost four years as the All Ordinaries dropped 107.7 points, or 2.73%.
That was a loss of 3% over the week, which was relative outperformance compared to the sharp falls on Wall Street, in Tokyo and in London. The Australian dollar fell heavily on Friday to close down almost 6% over the week at 62.20 USc.
The South African rand plunged 11%.
Even the 1.5 million barrel a day production cut by OPEC failed to stop oil prices falling in the face of swelling fears of a deep global recession.
In New York the Standard & Poor’s 500 index fell 3.5% and Nasdaq slid 3.2%. Both trimmed steeper falls in morning trading. But there was a sharp fall away in the market right at the end as fund selling again hit prices.
For the week, the Dow lost 5.3%, the S&P 500 lost 6.8% and the Nasdaq fell 9.3%.
So far this month, the Dow is off 22.8%, the S&P 500 is off 24.7% and Nasdaq is down 25.8%, on track for the worst month since the October 1987 crash.
In the S&P’s case, this October could end up being the worst month ever in the post-World War II era.
The trio is down more than 40% since the Dow and S&P 500 hit all-time highs a year ago and the Nasdaq hit a bull-market high.
The Australian SPI 200 futures were 37 points lower at 3840, pointing to a lower start today.
In the US the bad news about banks continued: Authorities in the state of Georgia have shut down a failed suburban Atlanta bank. The Georgia Department of Banking and Finance closed the two branches of Alpha Bank and Trust in Alpharetta on Friday, the 16th US bank to fail this year.
Iceland’s government said it had asked for $US2 billion of support from the International Monetary Fund,
