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Strategies & Market Trends : Waiting for the big Kahuna

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To: William H Huebl who wrote (27514)	9/12/1998 8:56:00 AM
From: flickerful	Read Replies (1) of 94695

commentary.global interest rate cuts? financial times saturday september 12, 1998 Bad for Bill and the bulls Stock markets in Europe and the US are still standing. But they are taking a real battering. This week has produced another series of blows. Most worrying, Brazil is now under the cosh (see below). If it buckles, the Dow - which has been gyrating wildly on a downward trend - will take another lurch into negative territory. The increasing likelihood that Bill Clinton will be impeached and details of the fall-out from Russia have further unnerved investors. As more banks on both sides of the Atlantic have owned up to their Russian and emerging market exposure, the banking bubble has burst. The shares of Europe's biggest banks have fallen up to 40 per cent since the end of June - with the Spanish and French ones worst hit. In the US, the carnage has been just as ugly. On Friday, Lehman Brothers, the investment bank whose shares are down more than half since the end of June, was forced to deny it was going out of business because of the turmoil. In the circumstances, it is hardly surprising that Britain's FTSE 100 yesterday became the latest big market index to surrender all its gains for the year, briefly slipping below 5000. The one bright spot is the hope that global interest rates will be cut. Japan has already led the way. The US Federal Reserve and the Bank of England have both hinted they may follow suit. The bond market is certainly anticipating that borrowing costs will be cut: 10-year government yields are now below 1 per cent in Japan and 4 per cent in Germany. But the remaining equity bulls are over-egging the advantages of lower rates. The bond market is coming close to predicting global deflation. Shares would not flourish if that occurred.

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