More profits warnings by major technology companies have led to renewed weakness on international stock markets and dealers believe they have further to fall before reaching bottom.
Although the latest earnings warnings, which began midweek with Marconi, affected the technology and telecoms sector, worries about the effects of economic slowness on profits was undermining most sectors. Dealers also noted heavy selling in the financial and pharmaceutical sectors, which were both undermined by the concerns about economic weakness after news that the US unemployment rate rose to 4.5 per cent in June from 4.4 per cent in May.
Investors took little solace that the surprise decline in US jobs gives the Federal Reserve more room to cut interest rates in coming months.
The US Labor Department said yesterday the economy shed 114,000 workers in June, almost three times the 43,000 job losses anticipated by economists. The figures were released as G7 finance ministers prepared to meet in Rome today where they are likely to discuss ways of steering the global economy back to a path of growth.
While European markets, especially technology stocks, were sharply lower even before New York opened for business, the American markets fell heavily from the opening bell. By midday, the Nasdaq composite index was down more than 3.5 per cent while the Dow Jones 30share index was down more than 2 per cent. At the close, the Dow was 10,252.68, down 227.18, while the Nasdaq was on 2,004.16, down 75.95. The trigger for the latest weakness was overnight profit warnings from American microchip manufacturer Advanced Micro Devices and data storage giant EMC where both companies said that their results were suffering from the economic slowdown.
On European markets, telecom stocks took a hammering with Nokia down 6.5 per cent and Ericsson 8.9 per cent as Goldman Sachs lowered its forecasts for the two telecom stocks as well as for French telecoms giant Alcatel. The Dow Jones STOXX technology sector dropped 6.2 per cent for the day and was down 16.5 per cent on the week. The FTSE TechMARK fell 2.9 per cent and Frankfurt's Neuer Markt 50 dropped more than 7 per cent to a new all-time low.
