Increasing borrowing costs spurred speculation that the losses from the mortgage-related investments can hurt earnings of companies and slow down economic growth. The chance for recession in the US increases as companies might be missing profit forecasts causing investors to sell out shares.

All major indices in the US declined yesterday. The Dow Jones Industrial Average lost 0.6% to 13,374.64. A broader measure of American equities performance, the S&P 500 Index, decreased 0.7% to 1,478.37. The Nasdaq Composite Index, grouping mostly technology firms, slipped 0.5% to 2,616.60. The biggest losers include financial companies: Lehman Brothers declined by $1.06 to $55.40 while Morgan Stanley lost 99 cents to $62.94. Citigroup dropped 67 cents to $46.54. Today American indices opened in red. At 16.39 ET the DJIA was at -1.07%, the S&P 500 was losing 1.19%, and the Nasdaq Index was 0.69% below the level it started the day at. European indices followed the trend. All major European indices lost during the day. UK’s FTSE 100 lost 1.35% to 6,291; French CAC 40 declined 1.87% to 5,566.70. Asia is starting to choke too on the sub prime mortgages crisis. The Japanese economy is clearly slowing down with the Nikkei 225 falling 1.60% to 16,158.45. The only Asian index ending the day in green is Hong Kong’s Hang Seng. Flowing capital from China and less restrictive regulations regarding investment by Chinese citizens in Hong Kong, lifted the Hang Seng by 0.77% to 24,069.17.

More details about how increasing borrowing costs are affecting the US economy will be presented today in the Beige Book. The Beige Book is produced two weeks before each Federal Open Market Committee (FOMC) meeting to help guide the committee when setting short term interest rates. Today’s macroeconomic publications only prove a deteriorating US economy. Pending home sales decreased by 12.2% while analysts expected only a 2.0% decline. To make matters worse, the ADP employment report showed that US companies added only 38K new jobs in the private sector. Analysts forecasted 80K new jobs. After the news, the EURUSD shoot up from 1.3585 to 1.3649 in 15 minutes after the publication.

Polish investors reacted as usual to news from the United States. The WIG 20 declined from 3,643 to 3,562 (a 2.0% decline). An important support level at around 3,500 is very close. Today, shares of 70 companies gained in value, 232 declined, and 21 remained unchanged. Volume reached over zł.1.3 billion. The biggest winners included Sanwil (100% gain) and ATM GRUPA (7.39%). The biggest losers include WDMSA (-16.20) and Viaguara (-14.71%). Both are quoted on the new market launched by the Warsaw Stock Exchange, New Connect. The next session should bring the answer to the questions of which direction will the Polish blue-chip index go. Increasing risk aversion and declining optimism of investors is causing a sell-out of stocks and realization of profits. Of course, Polish investors will dance to what “music” US indices will play.

Adam Narczewski