Stock market crashes

Jan 17 2008 by Alex Turner, Liverpool Daily Post

THE FTSE 100 Index fell below 6,000 yesterday, as markets responded to fears of an American recession on the back of bad news from US banks.

The market reacted by dropping through the psychological barrier for the first time since August, falling 117 points in morning trading.

In a roller-coaster day, the FTSE then recovered to a position six points above Tuesday’s opening of 6,025.6, following the publication of better-than-expected American consumer spending figures before plummeting again in the afternoon to close at 5,942.9.

This followed Tuesday’s trading, which saw £45bn wiped off the value of the London stock market.

Tim Woodhead, investment director at fund management group Rathbone Brothers, believes the market will remain volatile for the present.

“It’s a pretty nasty fall on the back of other falls,” he said.

“The market is down 7.5% since the start of the year, which is more significant than the 6,000 barrier.

“Volatility will remain the same. We are going to get more announcements from America, so if there is another significant write-off then it will drag the market down further.

“The US Federal Reserve is widely anticipated to drop rates by 0.5% when it meets at the end of the month, which will be the medicine the market needs.”

Citigroup, the world’s biggest bank, saw its creditworthiness downgraded after it unveiled a £5bn fourth-quarter loss and a further £9.2bn in write-downs on the high-risk mortgage-based investments behind last summer’s turmoil.

Citigroup and Merrill Lynch had both announced they were seeking a combined $21bn of investment to counter-balance the effect of the sub-prime mortgage crisis.

Carl Cross, investment director at fund management firm Rensburg Sheppard, in Liverpool, believes the UK would be unable to stop following America if they went into recession.

“If there is any recessionary activity in the United States, the likelihood is we’ll see that here as well,” he said.

“The market has had a very strong run since the depths of 2003 but the global credit crunch and the situation in the States are making people nervous.”

However, yesterday’s drop below 6,000 was not in itself a concern.

“It’s principally psychological,” he said.

alex.turner