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Is economic disaster on the cards today?

Date: Fri, 5 Aug 2011 | Author: Paul Sanderson

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Stock market falls, weak US jobs data and dropping commodity prices are threatening to bring a new economic crisis today.

Yesterday, the FTSE 100 lost 191.37 points, 3.4 per lower than a day earlier at 5,393.14. The Dow Jones closed more than 500 points, 4.3 per cent lower at 11,383. While Japan’s Nikkei lost 3.7 per cent to close at 9299.88.

Markets feared continuing debt crises in Europe with Italian and Spanish government debt yielding above 6 per cent, seen as a warning sign that the countries are in trouble. Indeed, the Bank of Spain said this morning that its economy only grew by 0.2 per cent in the last quarter down from the 0.3 per cent growth seen in the first quarter of the year.

While the turbulent resolution of the United States’ debt ceiling arguments earlier in the week has also spooked the markets with the future implications on the US economy still being worked out. The release of US employment data, at lunchtime GMT today, is expected to be weak, but could act as a catalyst for even more panic in the markets. Although many in the markets are suggesting that the market is correcting itself and pricing in this poor data.

ETX Capital senior trader Manoj Ladwa said: “The reality of a global economic contraction seems to have finally kicked in as the markets continue to plummet across Europe. Investors are pricing in a slowdown in growth and sovereign debt problems as equities drop across the board.

“While US payroll and employment numbers later today are likely to come in weak, the market does seem to have factored this in, and could recover some of its losses later in the session.”

Oil was down again as a result of the crisis. US crude fell below $83 per barrel for September delivery. While Brent Crude in London was down to $106.23 a barrel.

Copper took a battering on the market, with yesterday’s LME settlement price being $9,475 (£5,799) down from $9,570 (£5,838) on Wednesday. But at 4am GMT today, copper was down as low as $9,261 per tonne for three month delivery.

However analysts believe the fundamentals of copper remain strong. In a note Barclays Capital said that commodity investors may be overlooking the bigger picture in a market still well supported fundamentally. It said: “Our fundamental view is that the market will tighten enough in the second half of the year to drag inventory levels to all-time lows and push prices sharply higher [into the fourth quarter].”

Three month aluminium was down to $2,503 (£1,532) from $2,555 (£1,559) on Wednesday. Aluminium alloy was at $2,330 (£1,426) down from $2,370 (£1,547) the day before.

Lead settled at $2,506 (£1,534) down from $2,536 (£1,547) on Wednesday. Nickel finished at $23,550 (£14,412) also lower than Wednesday’s $23,905 (£14,582).

Tin was at $25,825 (£15,805) from $26,775 (£16,333) a day earlier. Zinc was down to $2,355 (£1,441) from $2,387 (£1,456) on Wednesday.

Steel was the lone metal to pick up increasing to $593 (£363) compared to Wednesday’s $585 (£357).

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