Asia relieved that Wall Street plunge not worse

JOHN NAIR

SINGAPORE, SEPTEMBER 18: ASIAN markets opened higher on Tuesday, relieved that Wall Street’s biggest-ever points plunge was not worse and buoyed by a round of central bank rate cuts, but the spectre of global recession could not be shaken.

The Dow Jones Industrial Average tumbled 684.81 points, or 7.13 per cent, to a near three-year low of 8,920.70 on the first trading day since last Tuesday’s devastating attacks, but markets across Asia responded with stronger openings, led by a 3.22 per cent morning rise in Japan’s Nikkei index.

Analysts were acutely aware the global outlook was still very uncertain and the risks were weighted towards recession, despite the best efforts of US officials to talk up the economy. “I think we’re in for a rocky ride today, but overall we should stay in positive turf on the back of somewhat surprising gains in Europe, a relatively benign fall for the Dow, and vague hopes the Bank of Japan will join the cutting fray,” said Masaru Kazama, head of equities at Nissan Securities.

The Federal Reserve cut its key short-term interest rate by half a percentage point before Wall Street reopened after its longest closure since the Great Depression, and made it clear it was prepared to do so again if necessary to keep the economy growing. The Fed was matched by the Bank of Canada, and then the European Central Bank announced a half-point cut that it said was coordinated with the United States. The Swiss National Bank quickly followed the ECB.

The Bank of Japan, which started a two-day Policy Board meeting on Tuesday, is also expected to ease its already ultra-loose monetary stance — although Governor Masaru Hayami said the decision would not come on Tuesday.

The view that even before the attacks the US economy needed a rate cut has intensified concerns of a global recession, but US officials, led by President George W Bush and Treasury Secretary Paul O’Neill, did their best to talk up the economy. “I’ve got great faith in the economy,” Bush told reporters. “The underpinnings for economic growth are there.”

Dollar pulled back from its multi-month lows against the yen and the euro, as the global easings and wariness of more Bank of Japan intervention tempered the urge to sell dollars. “I think concerns that capital will escape from the US to Europe have eased, at least for now. The central banks have given the first aid,” said Yasunari Ueno, chief market economist at Mizuho Securities in Tokyo.

The yen softened to over 118 to the dollar in morning trade, having hit a six-month low of 116.65 on Monday, while the euro was just above 92 cents, a cent below its six-month high of 93.35 in London. The Swiss franc a safe-haven currency, also lost ground on Tuesday, trading back above 1.61 to the dollar after having hit an eight-month high near 1.5960 on Monday.

The relief in markets also saw another safe-haven asset, gold relinquish some of Monday’s gains as it opened down nearly $2 an ounce in Hong Kong. In points terms Wall Street’s fall was its largest ever. But in percentage terms it was not even in the Top 10 steepest daily drops, dwarfed by the record 22.6 per cent fall of Black Monday, October 19, 1987. (Reuters)