Sharp Fall For Second Day

Wall Street saw a sharp fall for the second day running, as prospects for economic recovery remain distant.

The Producer Price Index has reached the highest annual rate for almost 30 years, with a July rise of 1.2 percent, with the core price rise currently the highest since late 2006.

Investors have not been encouraged by the recent fall in oil prices, with crude falling sharply from a high of $147 a barrel, and with the current perilous state of the housing and employment markets banks are predicting continuing losses.  

Housing downturn

Housing figures show the construction industry at its lowest ebb for more than 17 years, and although this is above the predicted levels it offers no encouragement.

Analysts are estimating that Lehman Brothers Holdings Inc will see a third quarter write down in investments of $4billion, adding to the gloom in the financial sector, and with the financial institutions at such a low point thanks to the problems in the mortgage markets loans are increasingly hard to come by.

The Dow ones fell to 11,348.55, a drop of 180 points, representing the worst two-day performance since June, while other index’s also fell – the S&P 500 by 11.90, and Nasdaq down 32.62.
Low trading volumes are not helping the markets, as Anthony Conroy, Managing Director for BNY CovergEx explained.

‘Coupling the two, you have slow growth with higher inflation’ Conroy said.

Investors seeking security in government bonds saw mixed results, with inflation putting off investors thanks to the detrimental effect on returns.
In the currency market, the dollar fell against world currencies, resulting in an increase in oil and gold prices.

The Mercantile Exchange saw a rise of $1.66 on a barrel of crude on Tuesday, while investment banks are feeling the pinch too, with Lehman rumoured to be looking to sell divisions to raise capital.

Goldman Sachs predicted losses of up to $20 billion in the credit default swap portfolio, a method of insuring against bond defaults, which prompted AIG shares to fall by almost six percent, while retailers are reporting a marked reduction in consumer spending resulting in poor quarterly results.

Retail downturn

Home Depot Inc is among those reporting a decline, with a dramatic fall of almost 24 percent for it’s second quarter returns. This resulted in a share price fall of $1.

Target Corp and Sachs also saw falls, with the former suffering a 7.5 percent downturn and the latter just over 8 percent.

Smaller companies, as indicated by the Russell 2000 index, fell by just under 2 percent.

Overseas markets suffered falls too, with the Nikkei down 2.38 percent, the FTSE 100 2.28 percent, DAX 2.34 percent and France’s CAC-40 down 2.61 percent.