Financial markets suffered another turbulent session yesterday as robust US inflation data and recent strength in commodity prices added to concerns about worsening credit conditions.
Credit markets were unnerved by news that KKR Financial Holdings, the listed affiliate of private equity group Kohlberg Kravis Roberts, had delayed repayment of billions of dollars of commercial paper for a second time.
The news came hard on the heels of fresh writedowns at Credit Suisse and helped to drive credit spreads to record levels.
Oil also hit new highs, with US crude touching $100.40 a barrel, having spent most of the session below the $100 level.
Uncertainty about the outlook for the US economy was heightened by stronger than expected inflation data. Analysts warned that the strength of the data might limit the scope for the US Federal Reserve to cut interest rates further. "With high inflation and slow growth, the Fed is caught between a rock and a hard place," said Peter Possing Andersen, an analyst at Danske Bank.
The data initially unsettled equity markets, although a rally for US technology stocks helped to pull Wall Street's main indices well off their lows.
By midday in New York the Dow Jones was down 0.2 per cent and the S&P 500 was 0.1 per cent lower. The Nasdaq was up 0.1 per cent. However, European stocks failed to join in the rally, and the FTSE Eurofirst 300 index fell 1.2 per cent. In Dublin, the Iseq slipped fractionally despite a robust performance from AIB on the back of full-year results that, importantly, contained no nasty surprises. Asian stock markets retreated virtually across the board. In Tokyo, the Nikkei 225 fell 3.3 per cent, giving back much of last week's strong advance. Hong Kong shed 2.2 per cent and Seoul lost 1.9 per cent.
On the currency markets, the dollar got a modest lift from hopes that the Fed might not cut interest rates as aggressively as had been expected. It rose 0.5 per cent against the euro and hit a one-month high against sterling.
Strong commodity prices also fuelled worries about global inflation pressures. -
