US stocks closed weaker on 30-Jan-08, despite a 0.5% interest rate cut by the Federal Reserve, on the heels of a 0.75% cut last week. The volatile Dow Jones Industrial Average fell 0.3%, after giving up a 200-point intra-day rally, while the tech-heavy Nasdaq composite fell 0.4% and the Standard & Poor's 500 index fell 0.5%.
The US Federal Open Market Committee (FOMC) stated, “financial markets remain under considerable stress, and credit has tightened further for some businesses and households…Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets”.
But ominously, the FOMC added that while the latest interest cut, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity, “downside risks to growth remain”.
This points to a nervous day for global sharemarkets.
The Fed’s action coincided with a report by the US Department of Commerce showing the US economy hovering just above a recession, with growth slowing to just 0.6% in the fourth quarter.
According to US Commerce Secretary, Carlos Gutierrez, “the US economy is not growing as fast as we’d like - that’s why we need the President’s stimulus package as soon as possible because it will boost the economy by putting money into the hands of consumers”.
Meanwhile, small package carrier UPS, an important bellwether of US economic growth, stated that there is “more uncertainty in the US economy today than there was a year ago”. But CFO, Kurt Kuehn, stated the integrator “remains focused and confident” that its global business will grow, and the company anticipates the first quarter will be the “most difficult of the year, due to lower profitability from an early Easter and additional interest expense not yet offset by labor contract benefits”.
Aircraft manufacturers remain bullish for the prospects in the year ahead. The CEO of Airbus parent, EADS, Louis Gallois stated, “we do not see that the [aircraft] market is suffering from the downturn for the time being”. He added that environmental and cost considerations should push more airlines to order new aircraft and, overall, predicted that the days of “peaks and canyons” in global aircraft orders are over, though manufacturers could expect “more hills and valleys”.
And the tourism industry is also optimistic. UN World Tourism Organisation Director General, Francesco Frangialli, stated industry confidence “remains high” for 2008, although he warned this perception “might deteriorate”. Accordng to Dr Frangialli, international tourism, following another record-setting 2007 “might be affected” by the global context of increased economic volatility, but based on past experience, the sector’s proven resilience and given the current parameters, “we do not expect that growth will come to a halt”.
The final word goes to Singapore Airlines (SIA), which yesterday unveiled A380 services would commence to London (the second A380 route after Sydney) on 18-Mar-08. SIA Chief Executive, Chew Choon Seng, stated the airline's forward bookings remained robust and the airline should report better yields in the three months ended 31-Mar-08 than the same period last year.