Steve Quayle News Alerts

July 20, 2002
Larry Elliott, Charlotte Denny and Richard Wray

Global investors scurried for the haven of bonds and gold last night as a record US trade deficit and grim news from leading companies in America and

Europe sent share prices slumping around the world.

After another day of frenetic trading, the Dow Jones Industrial Average was stuck below its post-September 11 low as dealers reeled from the combined impact of poor figures from Sun Microsystems, news of a criminal investigation into the drugs firm Johnson & Johnson, and a monthly US trade gap of $37.64bn.

With figures showing that $7 trillion had been wiped off the value of shares in the US since the bear market began in March 2000, Charles White, president of Avatar Associates, said: "It's just ugly. It's the recovery that won't come. It's always one or two quarters away. People don't trust anything any more."

The Dow was down almost 300 points by lunchtime in New York, having dropped rapidly from the moment trading began. Other measures of share prices - the S&P 500 and the hi-tech dominated Nasdaq - were also down sharply.

In London, the FTSE 100's three-day rising trend was brought to an abrupt end with a 199-point fall, leaving the index lower than at the start of the week. The mood of near-panic on global markets led to increases in the price of government bonds and pushed up the cost of gold.

With shares showing no sign of bottoming out, Harvey Pitt, chairman of the securities and exchange commission, last night made the latest attempt to restore investor confidence.

Mr Pitt, America's most important financial regulator, said he was actively working to stamp out corporate crime, but admitted that investors had yet to be reassured despite "swift actions" to find and punish wrong-doers.

Network computer manufacturer Sun Microsystems reported its first profit for a year, but warned of further losses amid cut-throat competition in the technology sector that is forcing companies to cut prices in order to maintain market share.

Data from the US commerce department showed that the 15% fall in the dollar since April has yet to have any impact on the country's trade deficit, which defied expectations of an improvement to balloon by $1.5bn in May. The poor trade figures led to renewed pressure on the US currency, which lost ground against both the euro and the yen.

The sell-off in New York followed a decline in Europe, prompted by the announcement from Ericsson that the slump in stock markets was forcing it to offer new shares at bargain-basement prices. Share prices fell by 5.5% in Paris and 4.5% in Frankfurt.

Ericsson, a manufacturer of mobile phones and transmitters, revealed a deeply discounted financing and 6,000 more job losses after reporting its seventh consecutive quarterly loss.

The company priced its long-expected rights issue at a level that its shares have not stood at for 10 years and far below what analysts had expected. The company is looking to raise £2bn to pay down debt.

The pricing - at the equivalent of 26p a share - was a 75% discount to Ericsson's current stock price and one-tenth of the price of Ericsson's shares on April 19, the day before the company admitted that it needed more cash.

Ericsson also cut its forecast for the global handset market for 2002 and warned that the downturn across the communications world continues.

It now expects 390m phones to be sold worldwide this year - 10m less than rivals Motorola and Nokia which reduced their forecasts this week.

Ericsson, reporting a second-quarter loss of £240m, said the job cuts were part of an ongoing plan to drive down costs in the face of declining demand. It has already shed 42,000 staff and by the end of the year its workforce will have dropped to 60,000 from more than 100,000 a year ago.

http://www.guardian.co.uk/business/story/0,3604,758733,00.html