The sell-off continues in world markets. Shares, commodities, corporate bonds (except for Government bonds) are all down, with the huge US Treasury market rallying as investors continued to seek a safe haven.
Wall Street saw the Dow down 300 points, or around 2.5%, NASDAQ off 2.9% and the S&P 500 off 3% as worries about sub-prime mortgages, credit derivatives, the housing industry, poor earnings and a softening economy combined to shake investor confidence.
Our market lost one per cent Thursday and will go lower today. Asian markets on the other hand have yet to feel the selling push.
Chinese markets hit a new record yesterday but Europe fell sharply and stock indexes in Argentina, Brazil, Mexico, Turkey and Sweden sank more than 3%. The FTSE 100 in London had its biggest fall in four years.
Increased volatility and risk aversion were the drivers, especially in the US where the sub-prime woes and worries about the wider economy are crunching sentiment.
The key US 10-year bond yield tumbled to 4.76% in New York, down a huge 0.14% or so in a day as investors bought bonds for safety.
The US bond market is now close to where it was in May before the shake out started and yields peaked at 5.32% in early June for the 10-year security. They are now down half a per cent, however financing spreads for private equity deals continue to grow as investors become more risk averse.
Gold fell $US11 to $US675 an ounce, oil peaked at $US77.20 before falling to close at $US74.95 and looking weak as financial investors (AKA speculators) bailed out of commodities, as well as stocks and other securities. Copper, nickel, lead, tin and zinc all lost ground.
Only agricultural commodities were higher for weather and demand reasons, not speculation.
European markets fell by around 3%: the British market fell 3.15%, or 203 points with the combination of the problems with the Alliance Boots buyout (and despite some solid earnings reports) and worries that more deals would fail. Germany was hit by worries about Deutsche Bank.
Banks were hit by the failure of the Chrysler and Alliance Boots bond sales and the fact that a dozen investment banks, including Deutsche and JPMorgan, were forced to buy the bonds to make sure the deals completed.
Shares in Deutsche Bank and Citibank dropped by around five per cent at one stage. This was due to worries about the impact of the failed deals on earnings and concerns that worse is to come with some huge deals still to be done among the estimated $US300 billion in high yield bond offerings still to come to markets in the US and Europe.
It was the biggest fall since the February correction (which resulted from a snafu in the NYSE trading systems than a real plunge).
US Government bonds had the biggest rise since December 2004 as investors sought the relative safety of government debt. The S&P 500 hit a 10 month low, only days after reaching an all time high. The Dow passed through 14,000 last week, now it's down around 5% at 13,400.
Those worries about buyout debt continued
Chrysler and Alliance Boots' failure to find buyers for $US20 billion of loans to pay for their buyouts, leaving banks holding the debt, has got market watchers wondering about other deals in trouble.
Cadbury Schweppes, the British consumer goods group, is high on the list as it tries to get the $US15 billion it is seeking for its US beverages unit. The two buyout groups bidding for the business can't raise the funding at the moment.
This failing would be a big blow.
Investors are also watching the Blackstone Group's attempts to finance its Hilton Hotels buyout.
And Tyco Electronics, sold off last month by Tyco International, has called off the sale of $US 1.5 billion of bonds because of the global rout of debt offerings.
The risk of owning corporate bonds also rose after ABN Amro Holding NV's Australian hedge fund half owned associate, Absolute Capital, suspended withdrawals for three months. That added to concern that fallout from bad sub-prime mortgages will worsen.
In the US, shares of major homebuilders plunged to the lowest in almost four years after D.R. Horton Inc. and Beazer Homes USA Inc. reported losses totalling $US1.47 billion on lower sales and huge write downs of unsold land and houses.
The US Commerce Department reported that purchases of new homes in the US dropped more sharply than forecast last month.
The backlog of unsold homes rose to its highest level since 1992. That has hammered housebuilder stocks (down 57 per cent in two years), and led to the collapse of sub-prime mortgage lenders, the departure of other companies from the industry and tougher lending standards for new borrowers.
It is why sales of existing homes fell again in June and why new housing starts fell 6.6 per cent last month.
That fall in new homes was the biggest since January when the implosion started.
Purchases ran at an annual rate of 834,000 in June, from a revised 893,000 rate in May. Economists had forecast new home sales rate of 890,000.
Sales were down 22% from June last year, the median price of a new home fell 2.2% and that rate of purchases is close to the lowest for seven years.