FTSE falls as Morgan Stanley warning coming true

| August 10, 2007
FTSE falls as Morgan Stanley warning coming true

At the beginning of June this year Morgan Stanley issued a stark warning – a market correction was imminent, which could wipe out 15% from European equities over the next six months.

Despite there being real concerns over the US subprime market and rising interest rates, the bull traders continued unheeding and continued their herd-like grab for short-term gains.

At the start of June, the FTSE 100 was touching the 6700 point mark, and July saw one of the most bullish months of this year.

However, the first week in August saw the bottom begin to fall out from the markets, as the FTSE began a drop into 6200-6300 territory. As expected, the markets tried to rally at the opening of the following weak, and as expected, it was weak – and it failed.

Today the FTSE 100 is especially seeing another big set of losses, dropping to just above the 6050 point mark, with further weak rallies expected through the day as markets attempt to drag themselves back to their feet, on the back of huge capital liquidity pushed into the financial markets by central banks across the globe yesterday.

However, no matter what today’s rallies may gain, it remains that yet another August week is likely to end with big falls not simply across European equities, but across markets worldwide.

And this is a trend we’re likely to see continue.

While some analysts are speaking of “market volatility”, the sentiment behind the statement is expect a continued downturn, unless a good series of company earning reports through the month can put the brakes, if only temporary, on current market falls.

In the meantime, the banks that are the powerhouses of investments are already retracting from risk, counting their losses on worthless debt purchases, and steeling themselves against further market falls.

In the meantime, the bulls losing their shirts have only themselves to blame – the current falls have been predicted through the year, and it’s now over two months since Morgan Stanley issued their warning.

Excepting that while the FTSE may have lost almost 10% in value since then, Morgan Stanley made the point that losses of 15% were typical after such warnings.

The real warning is that the FTSE could yet lose another 400-500 points before financial markets stabilise again.


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