News Brief – January 23, 2008
Financial markets remained uncertain Wednesday after the U.S. Federal Reserve made its biggest rate cut in 25 years.
The move was meant to bolster jittery markets with many investors fearing the onset of recession.
However, the cut hasn’t entirely restored confidence. Billionaire investor George Soros told reporters that it was going to be difficult for the UK and US to avoid a recession, even after the Fed cut its main interest rate to 3.5% from 4.25%.
The world’s financial markets seemed to confirm Soros’s warning.
New York’s main Dow Jones index dropped 1.1%, with the technology-dominated Nasdaq sliding 2%.
The UK's FTSE 100 index was 90.90 points, or 1.58%, lower at 5,649.20, erasing much of what is had recovered on Tuesday.
Meanwhile Germany's Dax lost more than 4%, while France's Cac 40 was down 2.7%.
Overall the FTSE 100 has lost about 14% of its value since the beginning of 2008, wiping £228bn off the total value of the companies listed on the index.
Germany Dax's index has been one of the worst hit in Europe, down almost 20% this year.
Despite yesterday’s late rally on Asian and European stock markets, investors were still nervous.
“We consider the Fed's rate cut still insufficient for the global financial markets to completely recover and help the Japanese stocks to fully rebound”, said Shinichi Ichikawa of Credit Suisse.
Moreover, many investors felt that the Fed’s sudden rate cut was a sign of panic with potentially bigger problems still to come.
"The Fed's action provided a very positive surprise," said Tsuyoshi Segawa, strategist at Shinko Securities in Tokyo. "But people are also starting to think that things may be so bad they needed to act."
While many were still nervous, investors generally agreed that the European Central Bank would not follow the U.S. Federal Reserve’s rate cut, at least not immediately.
A poll taken among European investors after the U.S. Federal Reserve’s rate cut found most thought the European Central Bank will take several months before it follows the Federal Reserve’s lead.
The consensus was that the European Central Bank would cut its rate, but only in the second half of 2008.
Last updated 25/01/2008