• Home
• /
• Business

Europe, Japan data point to worse times ahead

Investors piled into government bonds and gold as those fears and concern over the level of exposure of western European banks to eastern European economies hit the euro currency as well as bank stocks.

The euro zone February flash purchasing managers’ index for the dominant services sector hit a record low of 38.9. French business morale also dropped to a record low this month as falling orders hit confidence and manufacturers braced for the possibility of falling prices.

European stocks tumbled to a six-year low as investors fretted about the prospect of more capital increases and bank nationalisations on the back of a deepening economic downturn.

“We’re near the cliff’s edge, very close to capitulation, the mood is very gloomy,” said Jean-Claude Petit, head of equities at Barclays Wealth Managers France.

“I’m not sure that governments and central banks are realising what’s really going on. The gaffes made by West-European banks in East Europe revealed recently are having a devastating effect on the market,” he said.

By 1130 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares was down 2.7 percent at 743.09 points, having hit a low of 739.12.

German Stimulus

Germany’s upper house approved a 50 billion euro ($62.88 billion) stimulus package on Friday to help it withstand its worst recession since World War Two.

In eastern Europe, evidence has been mounting of governments struggling to find sources of financing, as global economic woes have reduced the available cash to fund budget deficits, investment and domestic lending. [ID:nLJ814436]

German Chancellor Angela Merkel said on Thursday Berlin stood ready to help eastern European countries in financial trouble, primarily through the IMF.

European Commission President Jose Manuel Barroso said the commission was “contemplating all scenarios” and had 15 billion euros available after previously providing a total of 9.6 billion euros to Hungary and Latvia.

Topping up the pressure, the chairman of Morgan Stanley Asia said China will record little or no growth between January and March compared with the preceding three months.

China reported 6.8 percent growth in the fourth quarter compared with a year earlier, but Stephen Roach said this failed to reflect the sudden loss of momentum late in the year.

“On a sequential basis, fourth quarter relative to third quarter, we think the number was closer to zero and likely remained that weak in the first quarter of 2009,” he said.

In its monthly report on Friday, the Bank of Japan said economic conditions were deteriorating rapidly—its bleakest diagnosis ever—and were likely to continue to worsen for the time being.

Japan has been hit particularly hard by the global slump triggered by the U.S. housing market meltdown, due to its heavy dependence on exports and chronically weak domestic consumption.

The contraction of its main export markets is pushing firms like Toyota Motor Corp 7203.T and Sony Corp 6758.T deep into the red, prompting job and production cuts and setting the economy on course for its longest recession of modern times.

U.S. CPI, Banks

Wall Street looked set for a lower opening ahead of U.S. CPI figures. [.N] Consumer prices are expected to have risen in January as a recent rise in energy prices defied the economic downturn and disinflationary trends.

Shares of major U.S. banks tumbled on Thursday on concerns about government plans to mop up bad assets from their books. The KBW banks index .BKX fell to its lowest since 1992, led by a 14 percent slide in Bank of America BAC.N shares.

The Obama administration hopes to encourage new lending by effectively subsidizing the profits of hedge funds and private equity firms that serve as bankers to the banks, the New York Times reported.

“There seems to be a whiff in the air that we’re moving much closer to nationalisation, which would effectively wipe out stockholders,” said Paul Nolte, director of investments at Hinsdale Associates, in Hinsdale Illinois.