Global stock markets suffer due to lack of confidence

by Richard Kilner

Story link: Global stock markets suffer due to lack of confidence

Worldwide shares suffered at the hands of rising anxieties regarding the central banks’ ability to counter the credit crisis engulfing the financial world at the moment.

In America, shares in Wall Street achieved a late rally. Elsewhere, in Asia and Europe, warnings that the plans to try and counter the credit crunch were too small to deal with the problem led to a substantial financial hit being endured. This was exacerbated by the large losses suffered by a number of significant financial institutions.

William O’Donnell, a strategist at UBS, has said that the plans would not be able to address the causal factors of the current situation: namely the US housing slump and the ensuing credit crisis.

The central banks have attempted to arrest anxieties by indicating they are willing to intervene strongly should it be required by the market, though this seems to have fuelled worries rather than defused them.

With both European or US currency the borrowing cost has stayed at a high level, close to seven year highs. In the euro, three-month funding costs stay at 4.95%, with a small fall in three-month US dollar costs down to 4.99%. Sterling remains higher than either, at 6.51%.

Alan Greenspan, once the chairman of the Federal reserve, has changed his own thoughts on the future economy of America. Earlier he had said he believed the chances of a US recession to stand at about one in three, but now he forecasts that the odds on such an event is closer to being one in two.

The Bank of England and the Bank of Canada recently announced that they were expanding the acceptable collateral range for loans.

Meanwhile the European Central Bank and Swiss National Bank have planned currency swaps with the Federal Reserve.

The Federal Reserve is to auction $20bn of funds on the 17th of this month, and would expand collateral accepted for the auction.