The dollar rose to a 15-month high against a basket of major currencies as investors scrambled for cash preferably in the world’s reserve currency.
US President George W. Bush insisted yesterday the raging global financial firestorm would be put out as panic-stricken markets suffered more staggering losses.
As stock exchanges sucked deeper into the turmoil, Bush blamed “uncertainty and fear” for much of the global financial meltdown but promised the crisis would be controlled.
“Anxiety can feed anxiety and that can make it hard to see all that is being done” to address the problem, he said in a White House statement. “We can solve this crisis, and we will,” he promised.
In US equities, the Dow Jones slid as much as 8 percent to break below 8,000 for the first time since April 1, 2003, and bringing its losses for the week to more than 20 percent. Morgan Stanley, the No. 2 independent investment bank, plunged 37 percent on doubts that a planned $9 billion cash injection from Japan’s Mitsubishi UFJ Financial Group Inc. would be enough to enable it to ride out the current crisis.
The Dow Jones Industrial Average was down 360.01 points, or 4.20 percent, at 8,219.18. The Standard & Poor’s 500 Index was down 44.48 points, or 4.89 percent, at 865.44. The Nasdaq Composite Index was down 69.84 points, or 4.25 percent, at 1,575.28.
The S&P energy index slumped 9.36 percent, as energy shares slid with a sharp drop in crude oil prices as fears rose over cooling demand for energy.
The Saudi stock exchange was volatile last week. The Tadawul All-Share Index (TASI) plunged 17.4 percent since trading was closed on Sept. 29 for the Eid Al-Fitr holiday, closing the week at 6,161.52 points, down 1,297.98 points. The index is currently 44.19 percent lower than the year’s start. Over SR13.69 billion worth of shares changed hands last week.
The Riyadh-based Bakheet Investment Group (BIG) said in its weekly report that Saudi stocks are likely to rebound strongly this week, citing the historically low share prices and the vigorous fundamentals of the Saudi economy.
TASI plummeted nearly 10 percent on Monday, the first day of trading after the Eid Al-Fitr holiday. TASI also fell on Tuesday, but rebounded on Thursday after Deputy Gov. of the Saudi Arabian Monetary Agency (SAMA) Mohammad Al-Jasser discounted the effects on Saudi Arabia as a result of the global financial crisis.
Commenting on the Saudi stock market’s debacle last week, Said Al-Shaikh, chief economist at the National Commercial Bank (NCB), said the market had overreacted.
“I would see this behavior more of a panicking behavior just to sell without realizing that many of Saudi stocks are good stocks and they are generating good returns so far this year.”
He added: “The current valuation makes Saudi stocks very attractive.”
Arab stock markets are expected to be vigilant this week with investors monitoring any developments at the Wall Street and other global markets, financial analysts said yesterday.
The rebound followed a bloody week that reportedly cost the Arab world about $180 billion in losses.
“I believe all Arab investors will assume caution next week, awaiting what is going to happen in the US and other world markets,” Nizar Taher, chief of brokerage at the Jordan Ahli Bank, said.
“Regional markets are still gripped with panic despite measures taken by governments and central banks, including interest rate cuts, and reassurances by experts that the Middle East would be immune to the fallouts of the global financial crisis,” he said.
European shares closed out their worst week ever, with the pan-European FTSEuroFirst 300 index shedding 22 percent for the week after closing down 7.6 percent.
The FTSEurofirst 300 closed at 851.23 points, its lowest close since July 2, 2003.
The DJ Stoxx European bank index fell 10.6 percent, with Royal Bank of Scotland down more than 20 percent while Credit Suisse and Deutsche Bank lost over 16 percent each.
The MSCI world equity index fell more than 4.0 percent at one point to a five-year low, losing a fifth of its value this month alone. The index has lost 43 percent since January, on track for its worst yearly performance in 20 years.
In US government bonds, only short-term Treasury bills, which are considered pretty much a cash equivalent, were able to catch a bid.
The benchmark 10-year US Treasury note was trading 24/32 lower in price for a yield of 3.88 percent from 3.78 percent late on Thursday. The only buying of debt was on the very short end of the Treasury curve, where one-month T-bill yields were trading all the way down near 0.07 percent.
The US dollar rose as investors moved out of riskier markets.
Earlier the flight-to-safety sent the yen to a more than six-month high against the US dollar and a three-year peak versus the euro. The Japanese currency also rose sharply against higher-yielding units such as the Australian and New Zealand dollars, as carry trades were unwound.
Tensions persisted in the money market, where the cost of borrowing dollars for three months rose to 4.81875 percent at the fixing in London.
In currency markets, increased risk aversion left the yen as the currency of choice, with the euro earlier falling to a three-year low of 132.80 yen and the dollar hitting a 6-1/2-month low of 97.92 yen.
In midday trading in New York, the Intercontinental Exchange’s US dollar index, which tracks the value of the greenback against a basket of six currencies, rose 0.7 percent to 82.105, after rising as high as 82.223, the strongest level since June 2007.
The euro fell nearly 1.0 percent against the dollar at $1.3468.
Fears about Britain’s vulnerability to the financial crisis sent the pound tumbling to a five-year low of $1.6802.
Equity trading in Russia, Iceland, Romania, Ukraine and Indonesia was halted.
Asian stock markets went into a tailspin yesterday, with Tokyo diving 11 percent at one point as fears grew that the financial crisis is spiraling out of control, dealers said.
Investors took fright at news that the credit crisis has claimed its first Japanese financial institution with the bankruptcy of Yamato Life Insurance, pushing the Nikkei stock index down 9.6 percent by the close.
It was the Nikkei’s biggest loss in two decades, surpassing Wednesday’s plunge of 9.38 percent. The Nikkei has lost more than 24 percent over the past week.
The rout quickly spread to other markets. Sydney plunged 8.3 percent, Singapore lost more than six percent and Seoul slid 4.1 percent. Shanghai was down 3.8 percent by midday as Hong Kong sank 7.0 percent.
Indian shares plunged almost eight percent within minutes of opening.
— With input from Abdul Jalil Mustafa and agencies
