FYI | Jul 14 2006
By Greg Peel
The Dow Jones Industrial Average fell a further 167 points overnight, following on a 121 point fall yesterday. Fuelling negativity was the escalation of Israeli-Arab conflicts as the war with Lebanon reignited.
More direct, however, was the effect of another new high in oil last night as West Texas Intermediate toyed with US$77/bbl. Higher oil prices only reinforce fears that the Fed will continue on its tightening phase in order to curb inflation.
Such negative sentiment could not come at a worse time, as second quarter US earnings results begin to disappoint, suggesting an economic slowdown – much anticipated – is well underway.
Yesterday it was a UBS downgrade of ubiquitous computer manufacturer Dell that provided a catalyst for weakness. Last night Merrill Lynch downgraded retailer Wal-Mart due to oil prices and rate fears. CIBC downgraded entertainer Walt Disney fearing a slowdown in 2007. Iconic car manufacturer Ford announced a halving of its dividend.
A spate of downbeat earnings news has lead investors to fear the worse – a combination of rising interest rates and a slowing economy which equates to stagflation and may well lead to recession.
Gold continued a measured rise in the face of world turmoil, closing at US$661/oz in New York.
Base metals were mixed overnight with minor rises for copper and nickel and minor falls for aluminium and zinc.
The Australian market held up rather well yesterday, buoyed by takeover speculation particularly in the media sector. Descending gloom in the US might just have a more significant effect today.