7 May 2010

NZ market calm after panic on Wall Street

10:40 pm on 7 May 2010

The New Zealand share market has remained relatively calm on Friday after one of the most turbulent days on Wall Street.

The Dow Jones industrial average plummeted 998.5 points in half an hour during trading on Thursday.

Already sliding on fears that some European countries would not be able to meet their debts, the United States market took a sudden tumble - with shares in major company Procter & Gamble losing 37% in a matter of minutes.

It is being reported that a trading error may have been partly to blame, in which a trader may have accidentally entered a sale in billions rather than millions.

Stocks then recovered, though all the major indexes closed more than 3% lower, and shares recorded their biggest fall in a single day since April last year.

The Dow Jones dropped 347.80 points, or 3.2%, to 10,520.32. The Standard & Poor's 500 Index fell 37.75 points, or 3.24%, to 1,128.15, while the Nasdaq Composite Index lost 82.65 points, or 3.44%, to 2,319.64.

In New Zealand, the benchmark NZX 50 index lost 1.5% in morning trade on Friday after events on Wall Street. The market continued to fall in the afternoon and was 59 points, or 1.8%, lower at 3158 at the close of trade.

Sharebroker Hamilton Hinden Greene's Grant Williamson says there was little evidence of panic selling in New Zealand.

Markets in Asia also reacted to the panic on Wall Street. Japan's benchmark Nikkei fell 3.1%, China's Shanghai Composite Index was down 1.8%, while Hong Kong's Hang Seng was 1% lower on Friday.

In Australia, trading was extremely volatile. The All Ordinaries Index had fallen 91.2 points, or 1.98%, to close at 4,507.4, while the ASX 200 Index fell by 92.5 points to close at 4,480.7.

ASB economist Chris Tennent-Brown expects volatility in share markets to continue in the short-term. He says it is hard for the New Zealand Stock Exchange to escape the weak global sentiment - which has been hitting US markets for some time.

Mr Tennent-Brown says the US market was down significantly before the trading irregularity, and markets in Europe had also been weak.

NZ dollar still high

BNZ currency strategist Mike Jones said the fall in the New Zealand dollar overnight on Thursday was the sharpest since October last year when fears over Dubai's debt first hit world markets.

At 5.20pm on Friday, the New Zealand dollar was buying 71.12 US cents, 79. 99 Australian cents, 48.26 pence, 65.49 yen and 0.5608 euro. The Trade Weighted Index was at 67.44.

Europe market woes

Earlier, comments on the debt crisis in Greece by the European Central Bank (ECB) failed to calm investor nerves.

Greece's parliament on Thursday adopted an austerity package including wage freezes, pension cuts and tax rises, as it works to address its financial crisis.

ECB head Jean-Claude Trichet tried to to shore up eurozone confidence, dismissing the possibility of default by Greece and rejecting comparisons of the Greek financial meltdown with fiscal pressures on Spain and Portugal.

But he also disclosed that the bank's governing council had not discussed the possibility of buying government bonds, as many analysts have speculated it will, as a means of providing governments with financial support.

In London the FTSE 100 index of leading shares fell 1.52%, and France's market shed 2.2% and the The Frankfurt DAX slipped 0.84% on Thursday.

Following the ECB statement, the euro dropped to $US1.2654, a 14-month low against the US dollar, before recovering slightly.

Warning to banks

An international ratings agency has warned banks in the United Kingdom and Europe that their credit ratings could be damaged because of contagion from Greece's debt crisis.

Moody's says banking systems face very real threats if doubts are raised about their governments' abilities to pay debts.

It has referred specifically to the UK, Irish, Italian, Portuguese and Spanish banking systems.

Meanwhile, police in Iceland have detained the former head of Kaupthing, a bank that collapsed 18 months ago, over allegations of falsifying documents and breaking laws that forbid dealing in stocks for personal gain.