Investors Wonder Where the Economic Bottom Is

Trading on European exchanges is proceeding mostly calmly today as investors cautiously await the employment report in the U.S., hoping that the data might indicate a easing of recessionary pressures.

On European exchanges around noon, leading indices were down more than 1 percent, with the MSCI World Index losing about 0.5 percent. Market nervousness, and thus uncertainty regarding stock price direction, will persist until the first signs appear that the largest global economies have reached a bottom, after which a recovery can begin, analysts say.

Financial and monetary authorities in countries around the world are doing everything they can to make this happen as soon as possible. The largest global central banks are cutting interest rates to record low levels and injecting fresh capital into financial markets to stimulate lending, while financial authorities are implementing various programs to encourage economic growth. However, it will take several more months to see the results of all these measures.

The difficulties are also evident in the example from Britain, where commercial banks are not following the central bank’s sharp cuts, meaning that citizens and companies are not receiving cheaper loans, which indicates that the actions of monetary authorities are ineffective. After the Bank of England cut the key interest rate by a full percentage point to 2.0 percent yesterday, some banks followed suit, while others only partially reduced their rates, for example, by 0.50 or 0.75 percentage points. This has upset Prime Minister Gordon Brown, who announced a stern conversation with bankers this morning.

"I think banks should really reduce rates as much as the central bank does, so we will talk to them. Last time the central bank cut rates, we had to talk to banks to get them to reduce theirs by the same amount, and we will do so again now," says Brown. The Australian government, on the other hand, has been in talks with bankers to assist the local automotive sector, which is suffering from a decline in demand. The government has requested $1.3 billion in credit facilities from banks for car dealers to survive until Australians start buying again. The government has yet to receive a decisive response from the banks.

Following such efforts by governments around the world to mitigate the recession, investors are awaiting employment data from the U.S. After poor indicators regarding labor market movements in recent days, analysts have raised their forecasts, now estimating that 340,000 Americans were left unemployed in November, while just yesterday they expected 320,000 layoffs. However, everyone hopes that the data will show a smaller number of lost jobs, which could positively impact Wall Street.

And while waiting for this data, the currency market is very calm. The euro exchange rate is practically unchanged against the U.S. dollar, hovering around $1.2760. The dollar’s price is unchanged against a basket of the six most important world currencies, but it has fallen against the Japanese yen by 0.2 percent to 92.2 yen. The price of oil has stabilized around $44 per barrel, the lowest level in nearly four years. (H)