Financial markets wait on New York

The Swiss markets are looking to New York Keystone Archive

Financial markets across the world are anxiously waiting for the New York Stock Exchange to open on Monday, after last week's attacks on New York's World Trade Center and the Pentagon in Washington brought the US to a halt.

Most analysts expect the stock exchange to open sharply lower when it does resume trading. Insurance companies, banks and aviation groups could be among the big losers.

A report in the Financial Times said some of the major US carriers, such as Continental Airlines, Delta Air Lines, Northwest, United Airlines and American Airlines were planning to cut capacity by at least 20 per cent as a result of last week’s damage.

Continental said such a reduction would force it lay off 12,000 employees. The company’s chief executive, Gordon Bethune, told the newspaper that worldwide airline job losses could reach 100,000.

European markets saw billions wiped off their share values in the wake of last Tuesday’s attacks although they recovered some lost ground as the week wore on.

The SMI – Switzerland’s leading share index – lost more than seven per cent of its value on Tuesday before clawing back some of its losses. European markets will be looking to New York for some kind of lead during the coming week.

Attacks hit already weak consumer spending

Correspondents said the historic attacks had dented consumer demand in the US. “I feel bad, you feel bad, everybody feels bad about what happened,” said Sun Won Sohn, chief economist at Wells Fargo & Co.

“We’re not going to feel like going shopping or going to a movie or going on vacation.”

Sohn said that the dip in already-weak consumer spending was likely to lead to a recession that lasts at least through to next year.

“I think a critical element for rebuilding consumer confidence will be how rapidly the Bush administration can put this issue behind us – identify the criminals, punish them and do it decisively without repercussions in the oil markets,” Sohn said.

Some hope for calm opening

Monday’s opening in New York could be calmer than expected, said Richard Sylla, a professor of business history at New York University. This is in part thanks to the US government’s quick moves to make sure there was liquidity in the banking system.

“If the system had broken down and people couldn’t get money out, they’d be worried,” he said. “They’d be thinking, let’s sell stocks and get cash, let’s get safer…All signs are that Monday could be ho-hum.”

Currency markets

Currency markets will also be looking across the Atlantic for signs of dollar weakness in the aftermath of the attacks. The dollar lost some value against the euro and the Swiss franc last week but central banks across the world have promised their support to keep markets stable.

On Thursday, the Swiss National Bank is due to release its monetary policy statement for the fourth quarter of the year. Most analysts have long expected the SNB to take the opportunity to announce an interest rate cut.

Most analysts expect a cut of half a per cent to boost the slowing economy. A further clue to the bank’s actions will be provided by GDP figures released on Wednesday.

The country’s economy has been slowing from last year’s extraordinary 3.4 per cent growth rate. The GDP rate for the first quarter of this year was still a healthy 2.5 per cent but there have been increasing signs that Switzerland is being affected by the global slowdown.

The bank may also feel it should take action to help the dollar and cutting interest rates would make the Swiss franc less attractive to investors.

swissinfo with agencies