There were smiles, perhaps nervous ones, at the closing bell, but Wall St on Friday mirrored other markets around the world, falling on worries of a global credit crisis, sparked by fears that America may have borrowed more than it can afford to repay. Equity Strategist Alec Young, from Standard & Poor’s said: “We are seeing a global re-pricing of risk, as a result of increasing sub-prime mortgage delinquencies in the US. Investors areound the world are reconsidering how much they want to charge low-quality borrowers to borrow their money.”
Central banks around the world injected some 250 billion euros into the markets, hoping to calm investors’ nerves. They fear that interest rate rises, and problems with credit to fund takeovers, will hit economic growth. Cristiana Casalinho, chief economist at the Portugese bank BPI said they’d expected rates were going to have to rise, and this move just came sooner than anticipated. The emergency action by the banks underlines the risks of a global credit squeeze. The weekend gives the markets time to calm down, but analysts in Europe spoke of deep-seated fear, and an all-round sense of panic.
The European Central Bank, in its last report on loans, warned that rates may have to rise. In this context, it may be that we will see faster changes in the situation than expected.