Financial markets endured another difficult session yesterday as risk aversion intensified amid persistent concerns about the outlook for the financial sector in general and Lehman Brothers in particular.
European and Asian equities came under renewed selling pressure, although Wall Street showed more resilience.
Meanwhile, worries about the broader economic outlook outside the US helped maintain demand for the dollar, which in turn helped drive US oil prices further down towards $100 a barrel.
“Concerns over the financial sector used to be seen as dollar-negative but now they are dollar-positive as they add to concerns over global growth,” commented Divyang Shah, chief strategist at Commonwealth Bank.
“Until the market eases up on these concerns over global growth, it is difficult to call an end to the current dollar rally.”
Andrew Cates, economist at UBS, said the likelihood of global recession was rising.
“GDP in Japan and the eurozone contracted in the second quarter of 2008, while in the US and the UK output is expected to shrink in the second half of this year,” he said.
“Overall, our recession probability model suggests investors place about a 25 per cent probability on a global recession in the year to come.”
However, there were some tentative signs yesterday that worries about the financial sector were easing.
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