Shares in freefall as recession hits

Shares in freefall as recession hits

Stock markets continue to open to falls, extending the freefall begun yesterday as it became clear the world economic cycle is realising recession.

At the time of reporting, the FTSE 100 index has already fallen below 6000 points, less than a year after breaching it.

Trouble began yesterday as Citigroup revealed continued losses from subprime mortgage-backed assets, which made it clear that the credit crunch is anything but over – and in fact can be expected to continue to impact through the year.

However, the big data everyone was looking at was for retail sales in the USA.

Commentators have been speculating since the end of 2007 that the US was already in recession.

Last week Merrill Lynch announced that it had, while Goldman Sachs declared the US would enter recession this year.

Data from US retail sales yesterday showed a continued and significant decline, confirming that the question was no longer once of if recession would occur, as much as when it had begun.

Additional bad news on Tuesday also showed Japan was likely to hit recession, too.

The overall outlook is that despite the best efforts of national treasuries, the era of low interest rates has left consumers over-spent, bridled with debt, and there’s no more room to push them into continued spending.

The economic cycle has already turned and the world’s financial markets are finally acknowledging that – while investors have already been moving their portfolios away from equities and into safer holdings such as precious metals.

Gold already reached a record $916.10 per troy ounce yesterday.

Meanwhile, continued increases in food prices and energy prices means that inflationary pressures are growing on economies with no steam left to invigorate them.

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