It’s been a bad end to a horrible week for investors. The Australian sharemarket has fallen again this morning after Wall Street plunged at a fresh 12-year low overnight on fears that car giant General Motors could be about to collapse.
In Australia, the benchmark S&P/ASX200 index was down 54.7 points or 1.7% to 3133.8 at 12.15 AESDT. The Australian dollar also slumped back to US63 cents.
Commonwealth Bank shares have dropped 2.3% to $26.69, with Westpac dropping 1.5% to $15.56. ANZ fell 0.7% to $12.56, while AMP suffered a massive 9% drop to $3.85.
But the falls were minor compared to Wall Street, where the Dow Jones Industrial Average dropped 281.4 points or 4.09% to 6594.44. Oil prices also dropped 3.5% to $US44 on fears that a GM collapse would drive petrol consumption down.
The car maker has itself said that auditors raised “substantial doubt” that the company could survive outside of bankruptcy. The collapse of the group would send repercussions throughout the auto industry, affecting thousands of jobs in the car parts manufacturing sector.
A spokesperson for the Obama Administration says the new President is working hard to ensure the survival of the company.
“The administration is very mindful of the challenges in the auto sector,” the spokesperson said. “Our team is working around the clock to develop the most thoughtful approach possible to the situation.”
Market pessimism was also fuelled by fears General Electric is also in trouble, while Citigroup shares traded below $US1 for the first time in history, leading to more speculation that its nationalisation is imminent.
The drop in the Citigroup’s share prices may be a sign investors are unconfident the company can recover from the $US37.5 billion in losses reported in the 15 months ending 31 December.
Rate cuts across Europe
Things are also bad over in Europe, where the European Central Bank has slashed interest rates to record low of 1.5%, while President Jean-Claude Trichet says further rate cuts may be necessary.
“We did not decide ex-ante that this was the lowest point that we could attain. Further decisions will depend on facts, figures… I don’t exclude that the policy rate could be changed and could go down.”
Trichet also commented that the latest inflation and unemployment data are “further evidence to our assessment that both global and euro area demand are likely to be weak in 2009. Over the course of 2010 it is expected to gradually recover.”
Meanwhile, the Bank of England has said it will spend £75 billion on bonds in an attempt to boost the British economy out of a recession while simultaneously cutting interest rates.
Governor Mervyn King has said that the latest cut to 0.5% will likely be the last and the bank is now using money to buy assets.
“The world economy has turned down very rapidly since last Autumn, the amount of money is not growing at all, and the economy is in a recession, so we need to increase the supply of money,” King said.
Bank of Queensland cuts jobs, NAB may follow
Back home, the Bank of Queensland has announced it will cut 10% of its workforce, but that no customer-service roles will be lost, as part of a process to make its internal operations more efficient.
“We are working through the process of identifying changes to our business and the subsequent structural changes, and will provide an update to the market at our half-year results in April,” a spokesperson said.
“We can also confirm that no customer-facing roles will be lost as part of this review.”
There is also speculation hundreds of jobs will be cut at National Australia Bank in the coming weeks.