Europe’s stock markets fell sharply in morning trading yesterday but Asian shares mostly finished the day sharply higher after Democratic Senator Barack Obama was elected US president.
“There is an element of ‘buy the rumor, sell the news’ that is driving some profit-taking to kick in,” said Martin Slaney, head of derivatives at financial spread betting group GFT in London.
In late morning trading in Europe, the London market was down 2.68 percent, Paris shed 2.88 percent and Frankfurt lost 2.13. Madrid dropped 1.48 percent and Zurich dived 2.52 percent.
Meanwhile, Wall Street prepared to cash in some of the previous session’s big gains.
Tuesday’s election results were not surprising to the market, except perhaps in terms of the wide margin by which Obama beat Senator John McCain. Rather, investors appeared to be gauging the economy’s troubles again, and acknowledging the fact that stocks have recovered so sharply despite dismal data.
More grim readings are anticipated this week. The Institute for Supply Management is expected to report yesterday that the service sector shrank last month after expanding marginally in the previous month.
Later this week, the US Labor Department releases its highly anticipated report on job losses last month, which are predicted to be massive following a freeze-up in the credit markets that crimped many companies’ ability to get financing. Economists on average expect a 200,000 drop in payrolls, Thomson/IFR said.
Ahead of the market’s open, Dow Jones industrial futures fell 87, or 0.86 percent, to 9,500. Standard & Poor’s 500 index futures fell 11, or 1.10 percent, to 989.30, while NASDAQ 100 index futures fell 14.00, or 1.01 percent, to 1,366.50.
The Tokyo stock market ended yesterday with a gain of 4.46 percent, Hong Kong jumped 3.2 percent, Seoul gained 2.4 percent and Sydney won 2.9 percent.
Shanghai closed up 3.16 percent and Mumbai fell 4.81 percent.
In Taipei trading, share prices closed down 0.29 percent as investors pocketed recent gains, dealers said. The TAIEX fell 14.37 points at 4,978.26, off a low of 4,965.40 and a high of 5,095.98, on turnover of NT$83.73 billion (US$2.55 billion).
“The [Seoul] market rose sharply thanks to an overnight Wall Street rally and a continuing buying spree by foreign investors on hopes that the next American leader would act to boost the sluggish US economy,” Goodmorning Shinhan Securities Kim Jung-hyun told Yonhap news agency.
Investors across Europe were meanwhile gearing up for further cuts to interest rates today. The Bank of England was widely expected to cut its key lending rate by at least half a percentage point as recession looms in Britain amid a global financial crisis. Some economists are even forecasting the bank to follow up last month’s emergency half-point reduction to 4.50 percent with a cut of 1 percent this time around.
Since the bank’s Monetary Policy Committee won independence from the government in 1997, it has never reduced British borrowing costs by more than 50 basis points.
The European Central Bank (ECB) is also set to cut its main lending rate sharply at a meeting today as inflation is falling fast in the eurozone.
Economists’ consensus is for a cut of half a percentage point to 3.25 percent. Late last month, the US Federal Reserve slashed its key lending rate by a half point to match a historic low of 1 percent.
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