Markets slumped again yesterday as better-than-expected US consumer confidence figures failed to put the brakes on a downward spiral that has taken global markets to multi-year lows this week.
The Dow dipped sharply towards the end of the session as some investors expressed disappointment over the decision of the US Federal Reserve to leave interest rates unchanged. At the close, it was 2.4 per cent weaker at 7,683.20, down 188.95 points.
In Dublin, the ISEQ fell through the 4,000 level to lows not seen since October 1998, while in Britain the FTSE 100 index lost almost £16 billion sterling as gloom among the financial and telecom stocks took the index close to 1995 levels.
"We're clearly in an environment where there is a sense the market is beginning to capitulate," said Friends First economist Mr Jim Power. "The rally since July 24th has run out of steam."
In Europe, all the main markets were down between 1 and 2 per cent, with some of the smaller bourses notching up larger losses.
The session opened badly in Europe with markets dipping on fears over the prospects of war in Iraq and the Nasdaq's six-year low overnight. However, things turned brighter shortly after the US markets opened when consumer confidence figures came in ahead of expectations.
The Conference Board said its index of consumer attitudes fell to 93.3 in September, its lowest since November 2001 but above forecasts for a fall to 92.3. The Expectations Index, a gauge of consumers' six-month outlook, rose slightly to 96.5 in September from 95.5 in August.
"The markets are deeply oversold and starving for good news," said Mr Peter Cardillo, chief strategist at Global Partners Securities. "Consumer confidence is very important. If consumer confidence stays up, then consumer spending will stay way up. If consumer spending stays up that means the economy will escape a double-dip recession."
However, growing fears for the US economy and the prospects for oil prices as talk of war heated up ended the mini-rally. Despite finishing off session lows, many stocks hit new depths and the losses were spread across a wide range of sectors.
"Momentum is still so strong and it is difficult to find a catalyst that will turn it around at this time," said Mr Power.
"All indications are that this is going to get worse before it gets better."
Mr Austin Hughes, IIB Bank economist, agreed. "The markets have lost faith," he said. "Traditionally, we would have faced into a Fed meeting with confidence that Alan Greenspan would wave a magic wand and put things right; that's not happening."
The Fed left rates unchanged despite the urgings of two members of the 12-strong open market committee.
A statement after the US central bank's policy-making meeting said it expected a pick-up in economic growth with the rate at its current level.
However, it also acknowledged that "considerable uncertainty persists about the extent and timing of the expected pick-up in production and employment owing in part to the emergence of heightened geopolitical risks" - an obvious reference to the possibility of war with Iraq.
Mr Hughes acknowledged that the Federal Reserve was in a very difficult position on rates. "They had to decide whether to sit pat and say the world is not as bad as it may seem and hope that that confidence lifts the market, taking the chance that a day later it looks like indifference, or they can make a change that could be seen as a panic move and may prove ineffective."
However, both Mr Hughes and Mr Power agreed that rates were likely to fall across the globe ahead of Christmas.
The Nasdaq also gave up mid-session gains to end slightly lower at 1,182.28 , down 2.65 points of 0.22 per cent. The broader Standard & Poor's 500 was 1.73 per cent weaker on 819.27.
Analysts generally were cautious on the prospects for any short-term rally. "It is difficult to see any rally being sustainable," said Mr Power. "Any advance will simply be seen at the moment as something to sell into."
