Threat of US crisis casts a pall over global markets

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Threat of US crisis casts a pall over global markets

SA also affected by jitters surrounding emerging markets, this time Argentina and South Korea GLOBAL financial markets are starting to shudder at the prospect that endless vote recounts and lawsuits in the US presidential election could blow up into a constitutional crisis.

US blue-chip and technology stocks took a pounding last week, with uncertainty about the election outcome compounding evidence of a slowing US economy and a string of disappointing corporate earnings.

The Dow Jones industrial average was down 2,1% for the week, and the technology-heavy Nasdaq composite index dived 12,2%, including a 5,4% fall on Friday, which took it to its lowest close since November 3 last year. The Nasdaq index has lost 25,6% from its peak earlier this year.

"The markets are marking time," said Adrian Schmidt, senior economist at Chase Manhattan in London. Darrell Whitten, strategist for ABN Amro in Tokyo, said "the election is one excuse to just sit on your hands right now".

As for SA, Nico Czypionka, chief economist at SG Securities, said "we are absolutely defenceless" in the face of the slide on Wall Street and another set of jitters surrounding emerging markets, this time centred on Argentina and South Korea.

The Johannesburg Stock Exchange all share index lost ground on Friday for the third day running, pruning 1,5% to 8171,3 points. Losers outnumbered winners by 270 to 127.

Morgan Sizer, a trader with Standard Equities, predicted that "as long as there's no clear direction from the US, this market is going to be coming off".

US technology stocks were hit on Friday, mainly as result of a warning from Dell Computer that its sales growth was slowing.

However, analysts said the undecided election was looming larger in investors' minds.

Some analysts expected the jitters to be short-lived, predicting that the close race for the presidency, as well as for the two houses of congress, have diminished the chances of potentially inflationary tax cuts or large increases in public spending. "Once we're through this little valley, it will be quite good for the US economy," Czypionka said. "It is just the short-term negatives knocking the market right now."

The final presidential vote count, including absentee ballots, will not be completed until Friday, at the earliest. A New York Times columnist commented yesterday: "That leaves an awful lot of time for warfare between the Democratic and Republican camps to get even nastier. If it does, stocks will probably experience further gyrations."

The Reserve Bank's monetary policy committee meets on Wednesday and Thursday to discuss the effect on economic policy of recent volatility in the rand and global markets. The Bank is expected to maintain its neutral stance, with no change in interest rates.

But Czypionka said it was important that the Bank send a moderate, cautious message. "If you wobble the equity market some more, you are going to have a major problem."

http://www.bday.co.za/bday/content/direct/1,3523,738640-6078-0,00.html

-- Martin Thompson (mthom1927@aol.com), November 13, 2000


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