Saturday, July 5, 2008
WORLD stocks slipped back towards this week's five-month low yesterday as steadying oil prices failed to erase concerns about slowing economic growth and rising inflation, and as banking stocks came under renewed pressure.
The euro failed to benefit much from the European Central Bank's quarter percentage point interest rate rise on Thursday, and the region's government bonds rose after President Jean-Claude Trichet said he had no bias on monetary policy, dousing speculation about aggressive rate increases this year.
A less hawkish tone from Trichet, followed by US job data which was in line with expectations, gave equity investors only short-term solace.
Exerting pressure on banking stocks, investment bank Goldman Sachs lowered its price targets for over 40 banks, saying that the sector was weighed down by the risk that banks will need to raise extra capital.
"We cannot get any big relief as long as the overall stagflation fears hang over the market, and the oil price is a major factor in this. There will be a wave of downward pressure on equities after any recovery," said Gerhard Schwarz, head of global equity strategy at UniCredit in Munich.
"The big question on equity markets is: how far will the derating go, and when will valuations find a bottom as we consider inflationary pressures not seen in two and a half decades?"
The FTSEurofirst 300 index fell 0.8 per cent while MSCI main world equity index was down 0.3 per cent, having hit its lowest level since January on Thursday.
Reuters
The euro failed to benefit much from the European Central Bank's quarter percentage point interest rate rise on Thursday, and the region's government bonds rose after President Jean-Claude Trichet said he had no bias on monetary policy, dousing speculation about aggressive rate increases this year.
A less hawkish tone from Trichet, followed by US job data which was in line with expectations, gave equity investors only short-term solace.
Exerting pressure on banking stocks, investment bank Goldman Sachs lowered its price targets for over 40 banks, saying that the sector was weighed down by the risk that banks will need to raise extra capital.
"We cannot get any big relief as long as the overall stagflation fears hang over the market, and the oil price is a major factor in this. There will be a wave of downward pressure on equities after any recovery," said Gerhard Schwarz, head of global equity strategy at UniCredit in Munich.
"The big question on equity markets is: how far will the derating go, and when will valuations find a bottom as we consider inflationary pressures not seen in two and a half decades?"
The FTSEurofirst 300 index fell 0.8 per cent while MSCI main world equity index was down 0.3 per cent, having hit its lowest level since January on Thursday.
Reuters