The United States credit crunch continued to hammer global economies yesterday as markets fed on innuendo and rumour, oil soared to a record high and the US currency reached new lows.
The US dollar hovered near an eight-year low against the yen as fresh signs of deterioration in credit markets hurt global shares and sparked unwinding of carry trades.
US stocks fell for a third day, depressed by fears of more credit losses and concerns that the world's biggest economy may already be in a recession.
Rumours circulated that Bear Stearns Co was facing a cash shortage, which the brokerage called ‘‘totally ridiculous''.
The private equity firm Blackstone Group announced a large quarterly loss and the Lehman Brothers investment bank was reported as preparing to lay off about 1400 employees.
Hurt by writedowns of US subprime mortgages and related securities, banks are increasingly reluctant to extend credit to investors such as hedge funds, triggering a cycle of margin calls and forced selling across many markets.
‘‘There is an enormous amount of credit jitters in the market, weighing on the dollar,'' a forex trader at a Japanese trust bank said.
Speculation that the Federal Reserve might lower interest rates from the current 3% before its regularly scheduled meeting on March 18 has also spurred dollar selling.
US interest rate futures now fully price in a 0.75% rate cut from the Fed this month, and about a 15% implied chance for rates to be lowered by 1%.
The NZX-50 fell yesterday to close down 27 points at 3520. The dollar fell to US79.1c but 90-day bank bills, a key mortgage rate indicator, rose to 8.93%, indicating that 11% floating mortgage rates were not far off.
Forsyth Barr broker Ken Lister said it was becoming nearly impossible to halt the stampede caused by the subprime crisis in the US.
‘‘A lot of companies in New Zealand are not affected by a US recession or the credit crunch.
But when the market turns negative, it is hard to stop. We will have several months of this when people say ‘It looks like the US is in recession'. It will stop when they look back and say ‘Yes, it was in recession'.''
The markets around the world were retesting their January lows on oil worries, the US credit crisis and some bank writedowns, Mr Lister said.
Oil briefly went above $US108 ($NZ138) a barrel yesterday, prompting economists to warn of high fuel prices coupled with a weak dollar adding to inflation woes in the US.
Higher inflation would make it harder for the Fed to cut interest rates to help stimulate economic growth.
