22/1/08

The Nikkei sank 752.9 points to close at 12,573 this morning, completing the worst two-day drop in 17 years on concern global growth is faltering. Toyota Motor Corp dropped by the most since January 2001, extending this years decline to 19% after the yen rose to the highest in more than two years against the dollar and climbed to a five month high versus the euro. Mitsui & Co slid to the lowest in a year after the prices of commodities including copper fell.

The Hang Seng is currently 1,613.3 lower at 22,205.6. Hong Kong's benchmark index is now headed for its biggest two day slump in a decade, on mounting concern the world economy is slowing. HSBC Holdings Plc plummeted to the lowest in more than four years. Zijin Mining Group Co, Asia's No. 1 gold producer by market value, sank the most on record speculation slowing global growth will dent demand.

A London stock market bloodbath of the highest order saw the FTSE 100 Index nosedive by 5.5% yesterday as fears of a US recession sparked a global sell-off. The Footsie plummeted by 323.5 points to close at 5578.2 - its biggest one-day points drop since the September 11 terrorist attacks in 2001. Shares across Europe also dived and Asian stock markets suffered heavy overnight losses as fears over the health of the world's biggest economy swept through markets across the globe. The falls followed Friday's drop for the Dow Jones Industrial Average on Wall Street, when investors were left unimpressed by the US government's tax relief plans to spur on the economy. Rumours that Bank of China may become the latest banking giant to reveal a financial hit from the collapse of America's sub-prime mortgage market also tested investor nerves.

Heavily-weighted banking and mining stocks were worst hit as concerns over a US economic slowdown gathered pace. HSBC and Royal Bank of Scotland - both with heavy exposure to the US economy - each saw significant losses, falling 48.5p to 712p and 30.5p to 342.75p respectively. Miners also lost out after a rumoured fresh offer from BHP Billiton for Rio Tinto failed to materialise. Bid target Rio fell 472p to 4228p and BHP slipped 143p to 1235p. Peer Vedanta Resources - off 141p at 1591p - also suffered as concerns over faltering global growth weighed on the sector.

Plumbing and heating giant Wolseley was among the early Footsie fallers, losing almost 9% after the company warned of a deteriorating US housing market and falling profits. But the firm recovered some lost ground as the session wore on to stand 26.5p lower at 689.5p. Insurer Standard Life, meanwhile, was on the back foot amid reports that Trevor Matthews, its head of UK life and pensions, was being lined up as the new CEO of Friends Provident, currently a bid target for a US private equity firm. While it is thought that Matthews turned down the job last week, shares in Standard Life still slipped 117p to 1482p.

Insurer Friends Provident was one of only four blue chip firms in positive territory after JC Flowers said it was eyeing a reported £4.1bn takeover. This pushed shares up almost 4%, or 5.5p, to 158p. In the second tier, Northern Rock led the risers board as the market reacted positively to plans for a private sector rescue for the mortgage lender. Shares were up more than 46%, or 29.75p, to 94.25p, with the Government's proposed support package significantly boosting hopes of avoiding nationalisation.

The news on the housing market is volatile but overall analysts expect a further increase in the number of surveyors reporting price falls relative to price rises, pushing the balance down to -45%.

UK CPI (Dec) 0930 GMT

Analysts expect CPI to remain at 2.1% in December. The global culprits of unpleasant inflation numbers - food and petrol - are expected to be up 0.6% and 1.5% on the month respectively. But analysts expect a further decline in core inflation to 1.3%. With monster gains in utility prices set to have an impact in 2008, core inflation will need to continue trending down to avoid CPI breaching 3% and prompting another explanatory letter from the Governor. RPI is likely to begin its decent as past rate hikes and new rate cuts start to drive down RPI inflation.

US PPI (Dec) 1330 GMT/0830 EST

Analysts expect the gasoline PPI to fall 2% and overall energy prices to fall 0.5%, after surging 11.1% in November. Finished food prices have continued to increase quickly. The energy and food price movements should offset each other, so that headline PPI rises 0.2%. Analysts also expect core PPI to be under control at 0.2%. Increased auto incentives may mean reduced prices on passenger cars and light trucks this month.

US Retail Sales (Dec) 1330 GMT/0830 EST

Analysts expect December retail sales to disappoint. Early estimates from clothing and department stores have weakened and analysts expect declines for the apparel and general merchandise categories. Even typically strong area, like electronics and health stores should continue to outperform. Analysts expect total retail sales to be flat, assuming a 0.5% rise in auto sales and a small drag from lower gasoline prices. Ex-auto sales may fall 0.2% and ex-auto and gasoline sales could fall 0.1%.

US Empire Manufacturing (Jan) 1330 GMT/0830 EST

The Empire Index has been stronger than the other manufacturing surveys in recent months, as well as for much of the past two years. Last month, the index fell to 10.3 from 27.4, but remained above breakeven level, unlike the Philadelphia Fed (-5.7) and ISM manufacturing (47.7) readings. Analysts look for a decline to 8.0 this month.

US Business Inventories (Nov) 1500 GMT/1000 EST