Equity markets continued to fall yesterday as persistent worries over US rate rises held sway. The French, German and London markets all closed lower on the day as traders continued to focus on credit tightening ahead of Friday's key US July jobs report. According to Mr Jim Power, chief economist at Bank of Ireland, the prospect of rate rises in the US, combined with a slowing economy, is worrying the markets. Company profitability would suffer if the economy turned down while borrowing costs rose.
The chairman of the Federal Reserve, Mr Alan Greenspan, warned last week that he would not hesitate to raise rates if he saw any inflationary signs.
The Fed next meets on August 24th and there are three key sets of data which would reveal the extent of inflation in the American system. Two of those have come in negative in recent days and the third is due on Friday.
Last Thursday the employment cost index saw a jump of 1.1, while the price component of the National Association of Purchasing Managers index on Monday also jumped from 53.5 to 54.7.
In the key non-farm payrolls on Friday, the markets are looking for an increase of about 190,000 jobs and 0.3 per cent on average earnings. Any higher than that will be another negative signal and will convince the markets that the Fed will raise rates by a quarter on August 24th.
In addition, traders are always nervous in August. Thin volumes mean market moves are exaggerated and the largest fall are almost always in the summer.
Yesterday, the FTSE 100 ended 37.7 points lower or 0.6 per cent lower at 6,250.6. The decline halted a two-day recovery, which saw the FTSE bounce 171 points from a four-month closing low last Thursday.
The ISEQ closed down 38.78 points at 4,868.47, while the German DAX closed down 0.43 per cent at 5,107.68 and the French CAC lost 0.53 per cent to 4,354.75.
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