Comments from the Federal Reserve chairman, Ben S. Bernanke, led to quick drop on Wall Street on Tuesday.
The Dow Jones industrial average, which was down about 140 points, skidded about the same amount after Mr. Bernanke told members of the National Association for Business Economics that the “outlook for economic growth has worsened and that the downside risks to growth have increased.”
In his remarks, Mr. Bernanke also hinted that the Fed would probably lower interest rates at its meeting late this month. In an address that was at once sobering but hopeful, he said the Fed would continue to aggressively use all the tools it has to try and ease the financial turmoil.
Shortly after 2 p.m., the Dow was down more than 300 points, or 3.3 percent, while the broader Standard & Poor’s 500-stock index was off by 3.8 percent.
Lending markets remained frozen and borrowing costs ticked up overnight, a day after cascading losses in stock exchanges around the world.
Some progress was being made, however, in the market for commercial paper, a common form of short-term financing used by businesses to finance day-to-day operations. Before the opening bell in New York, the Fed announced that it would buy up billions of dollars worth of short-term debt, effectively trying to provide liquidity to a market that has all but shut down.
Investors warmed to the news and borrowing rates for overnight commercial paper loans dropped. Stock markets rose at the opening bell and yields on Treasuries moved higher, suggesting that investors were willing to leave the safe haven of government notes.
The morning announcement by the Fed was an unprecedented move by the Fed, but it came at an unprecedented time. The logjam in commercial paper has threatened the daily workings of the nation’s economy.
Evidence of these problems continued to emerge on Tuesday. The State of Massachusetts said it would delay the sale of municipal bonds for a second time. The bonds are used to finance everyday costs like payroll for public employees; usually, the state repays the bonds at a small rate of interest. But many would-be buyers, frightened of lending cash, are demanding higher interest rates, which Massachusetts would prefer not to pay. If the bonds go unsold, the state will be forced to find alternate sources for financing, like asking the federal government for a loan.
A similar situation has already occurred in California, where Gov. Arnold Schwarzenegger asked the Bush administration last week for a $7 billion loan.
The Fed chairman, Ben S. Bernanke, will speak later this afternoon about the troubles facing the financial system. Many investors are clamoring for the Fed to cut rates, as central banks around the world scrambled to enact policies that could help shore up confidence among investors.
Borrowing costs rose overnight, with a benchmark rate known as Libor moving higher. Shares in Europe ended the day modestly higher as European Union officials tried to develop a coordinated response to the credit turmoil.
Oil prices rose about $2 a barrel but remained below the $90 mark.
Asian shares opened sharply lower after the 3.6 percent decline in the Dow Jones industrial average overnight, but moved off of their lows after the Australian central bank took the market by surprise with a full percentage point cut in its benchmark rate, leading investors to hope more cuts would be forthcoming.
The Federal Reserve, the Bank of England and the European Central Bank have all been warning that slowing growth is overtaking inflation as their primary cause for concern. In the absence of other policy tools, the banks could choose to ease rates to stimulate market liquidity.
Lorenzo Bini Smaghi, a member of the European Central Bank’s executive board, told Italian radio on Tuesday that policy makers were beginning to consider economic weakness a greater danger than inflation.
“The economic situation has got worse, the inflationary pressures are always there but they are less important than in the past and we will take decisions at the appropriate time,” Reuters quoted him as saying. Europe is “ready to do anything” to maintain stability.
In London, the FTSE 100 ended up 0.4 percent. The CAC-40 in Paris rose 0.6 percent, a day after losing more than 9 percent for its worst decline ever. The DAX in Frankfurt fell 1.1 percent on continuing concerns about the European economy.
Asian shares ended mixed, with the Nikkei stock average in Tokyo declining 3 percent. The benchmark index fell Tuesday below 10,000 points for the first time in five years, hit by worries about global growth prospects and the rapid surge in the yen. It recovered some of its losses after the move by the Australian central bank, but its closing level of 10,155.90 was the lowest since December 2003.
The Shanghai composite index slipped 0.7 percent, and stocks fell more sharply in Bangkok, Indonesia and Manila. But the S.& P./ASX 200 in Sydney posted a 1.7 percent gain after the Reserve Bank of Australia cut its main rate to 6 percent.
“The recent deterioration in prospects for global growth, together with much more difficult market conditions even for creditworthy borrowers, now present the risk that demand and output could be significantly weaker than earlier expected,” the Reserve Bank said in a statement accompanying the decision. “Economic activity in the major countries is also weakening, and evidence is accumulating of a significant moderation in growth in Australia’s trading partners in Asia.”
The Kospi index in Seoul added 0.5 percent. Hong Kong markets were closed for a holiday.
Banks remained under deep stress in Europe amid speculation that they would be forced to seek more capital, with the rates banks charge one another for loans rising to record levels.
Valérie Cazaban, a fund manager at Stratège Finance, said European trading was relatively calm on expectations that central banks would act, as well as the possibility that European finance officials meeting in Luxembourg might announce new measures to support financial institutions.
“The Paulson plan really didn’t do anything to help the market,” she said, referring to Treasury Secretary Henry M. Paulson Jr.’s $700 billion bailout program for the financial system. But investors are nonetheless hoping European officials will act jointly to address the crisis, instead of with the patchwork approach individual countries have employed so far.
In light of previous stock market declines, European shares, which she calculates have fallen 40 percent from their peak levels, were probably nearing a bottom. In contrast, American shares, which have fallen about 30 percent from the peak, have a lot further to go, she said.
David Jolly and Bettina Wassener contributed reporting.
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Markets Slide After Bernanke Remarks
By MICHAEL M. GRYNBAUM
7 October 2008
Comments from the Federal Reserve chairman, Ben S. Bernanke, led to quick drop on Wall Street on Tuesday.
The Dow Jones industrial average, which was down about 140 points, skidded about the same amount after Mr. Bernanke told members of the National Association for Business Economics that the “outlook for economic growth has worsened and that the downside risks to growth have increased.”
In his remarks, Mr. Bernanke also hinted that the Fed would probably lower interest rates at its meeting late this month. In an address that was at once sobering but hopeful, he said the Fed would continue to aggressively use all the tools it has to try and ease the financial turmoil.
Shortly after 2 p.m., the Dow was down more than 300 points, or 3.3 percent, while the broader Standard & Poor’s 500-stock index was off by 3.8 percent.
Lending markets remained frozen and borrowing costs ticked up overnight, a day after cascading losses in stock exchanges around the world.
Some progress was being made, however, in the market for commercial paper, a common form of short-term financing used by businesses to finance day-to-day operations. Before the opening bell in New York, the Fed announced that it would buy up billions of dollars worth of short-term debt, effectively trying to provide liquidity to a market that has all but shut down.
Investors warmed to the news and borrowing rates for overnight commercial paper loans dropped. Stock markets rose at the opening bell and yields on Treasuries moved higher, suggesting that investors were willing to leave the safe haven of government notes.
The morning announcement by the Fed was an unprecedented move by the Fed, but it came at an unprecedented time. The logjam in commercial paper has threatened the daily workings of the nation’s economy.
Evidence of these problems continued to emerge on Tuesday. The State of Massachusetts said it would delay the sale of municipal bonds for a second time. The bonds are used to finance everyday costs like payroll for public employees; usually, the state repays the bonds at a small rate of interest. But many would-be buyers, frightened of lending cash, are demanding higher interest rates, which Massachusetts would prefer not to pay. If the bonds go unsold, the state will be forced to find alternate sources for financing, like asking the federal government for a loan.
A similar situation has already occurred in California, where Gov. Arnold Schwarzenegger asked the Bush administration last week for a $7 billion loan.
The Fed chairman, Ben S. Bernanke, will speak later this afternoon about the troubles facing the financial system. Many investors are clamoring for the Fed to cut rates, as central banks around the world scrambled to enact policies that could help shore up confidence among investors.
Borrowing costs rose overnight, with a benchmark rate known as Libor moving higher. Shares in Europe ended the day modestly higher as European Union officials tried to develop a coordinated response to the credit turmoil.
Oil prices rose about $2 a barrel but remained below the $90 mark.
Asian shares opened sharply lower after the 3.6 percent decline in the Dow Jones industrial average overnight, but moved off of their lows after the Australian central bank took the market by surprise with a full percentage point cut in its benchmark rate, leading investors to hope more cuts would be forthcoming.
The Federal Reserve, the Bank of England and the European Central Bank have all been warning that slowing growth is overtaking inflation as their primary cause for concern. In the absence of other policy tools, the banks could choose to ease rates to stimulate market liquidity.
Lorenzo Bini Smaghi, a member of the European Central Bank’s executive board, told Italian radio on Tuesday that policy makers were beginning to consider economic weakness a greater danger than inflation.
“The economic situation has got worse, the inflationary pressures are always there but they are less important than in the past and we will take decisions at the appropriate time,” Reuters quoted him as saying. Europe is “ready to do anything” to maintain stability.
In London, the FTSE 100 ended up 0.4 percent. The CAC-40 in Paris rose 0.6 percent, a day after losing more than 9 percent for its worst decline ever. The DAX in Frankfurt fell 1.1 percent on continuing concerns about the European economy.
Asian shares ended mixed, with the Nikkei stock average in Tokyo declining 3 percent. The benchmark index fell Tuesday below 10,000 points for the first time in five years, hit by worries about global growth prospects and the rapid surge in the yen. It recovered some of its losses after the move by the Australian central bank, but its closing level of 10,155.90 was the lowest since December 2003.
The Shanghai composite index slipped 0.7 percent, and stocks fell more sharply in Bangkok, Indonesia and Manila. But the S.& P./ASX 200 in Sydney posted a 1.7 percent gain after the Reserve Bank of Australia cut its main rate to 6 percent.
“The recent deterioration in prospects for global growth, together with much more difficult market conditions even for creditworthy borrowers, now present the risk that demand and output could be significantly weaker than earlier expected,” the Reserve Bank said in a statement accompanying the decision. “Economic activity in the major countries is also weakening, and evidence is accumulating of a significant moderation in growth in Australia’s trading partners in Asia.”
The Kospi index in Seoul added 0.5 percent. Hong Kong markets were closed for a holiday.
Banks remained under deep stress in Europe amid speculation that they would be forced to seek more capital, with the rates banks charge one another for loans rising to record levels.
Valérie Cazaban, a fund manager at Stratège Finance, said European trading was relatively calm on expectations that central banks would act, as well as the possibility that European finance officials meeting in Luxembourg might announce new measures to support financial institutions.
“The Paulson plan really didn’t do anything to help the market,” she said, referring to Treasury Secretary Henry M. Paulson Jr.’s $700 billion bailout program for the financial system. But investors are nonetheless hoping European officials will act jointly to address the crisis, instead of with the patchwork approach individual countries have employed so far.
In light of previous stock market declines, European shares, which she calculates have fallen 40 percent from their peak levels, were probably nearing a bottom. In contrast, American shares, which have fallen about 30 percent from the peak, have a lot further to go, she said.
David Jolly and Bettina Wassener contributed reporting.
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