Concern regarding the US housing market was back on the global equities markets. Uncertainty about the future caused investors to realize their profits on stocks causing major stock indices to decline.  

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. At the beginning of the week, it seemed that confidence was back on the markets. The reason for such optimism came from last week’s declarations by the United Stated President, George W. Bush, and the Chairman of the Federal Reserve System, Ben Bernanke, that they will take any steps to avoid an eventual crisis on the sub prime mortgages market. Tuesday’s report showing that construction spending in the US declined by 0.4% verified that bright economic outlook. The fall of American indices spurred a global stock sell-out.

The Dow Jones Industrial Average, after climbing to 13,492 on Tuesday, declined to 13,248 but rebounded to 13,361. The S&P 500 Index, a broader measure of American equities, fell from Tuesday’s 1,495.8 to 1,467.0. The anxiously awaited Friday brought bad news from the US job market. Non-farm payrolls declined by 4K! Analysts expected an increase by 110K. It is the first decline of newly created jobs in the non-farm sector since 2005 when hurricane Katrina hit eastern US. Not only had the currency market reacted to the publication, where the American dollar lost against the euro and the British pound. American indices opened in red at 15:30 ET with the DJIA dropping to 13,155 and the S&P 500 to 1,455.

In pair with US indices go Asian stocks. The United States is Asia’s biggest exporter and a difficult economic situation of the US certainly hurts Asian exporters. Financial institutions are also hurt since they were engaged in the US mortgage market. The Japanese Nikkei 225 declined from Tuesday’s 16,529 all the way 15,886 but had a good finish of the week to end at 16,122. There is concern that the Japanese economy is cooling down. It has to do not only with the US housing market, but also with the country’s internal situation too. Capital spending in the second-biggest economy in the world is declining; fewer investments are made. To make it worse for exporters, the Japanese yen strengthened against the dollar during the week. That in turn, decreases profits of companies deriving most of their income from abroad (Sony, Nintendo, Toyota) thus causing their stock prices to fall.  

The path established by global indices is clearly followed by the WarsawStock Exchange (WSE). The WIG 20, the Polish blue-chip index, reached its weekly high on Wednesday at 3,646. Worse news from the US and increasing risk aversion, caused investors to protect their earnings and sell-out equities. The situation on the floor became even worse when news from the US labor market hit investors. During the last two hours of Friday’s session, the WIG 20 tumbled all the way down to 3,475 to finish the day at 3,488. To a big surprise to the market, the biggest winner on Friday was Petrolinvest, which gained 16.05%. The proximity of an important support level at 3,460 is dangerously close.

Adam Narczewski