Gloom envelops world markets

Saskia Scholtes and Michael Mackenzie
Financial Times
Saturday November 10, 2007

Stock markets on both sides of the Atlantic concluded their worst week in months on Friday as deepening economic gloom raised expectations that the US Federal Reserve would be forced to cut rates again in the face of mounting credit losses.

The S&P?500 was down 3 per cent for the week. In London, the FTSE?100 fell 3.7 per cent on the week, while the FTSE Eurofirst 300 was down 3.1 per cent, their worst performances since the credit squeeze took hold at the end of July.

The technology-heavy Nasdaq 100 experienced its worst week since April 2002, losing 6.8 per cent as market turmoil hit a sector that has been a haven from the credit crisis.

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Bond markets priced in the near certainty of a quarter-point interest rate cut when the Fed meets in December, and a 75 per cent chance of a second such cut at its January meeting. The yield on the two-year Treasury note fell to 3.41 per cent, its lowest level since February 2005.

“Treasuries are strictly in flight-to-quality mode, and investors are waiting for the next shoe to drop,” said Kevin Flanagan, fixed-income strategist at Morgan Stanley. “This is round two and there will probably be a round three.”

Rate cut expectations helped push the dollar index to a record low of 74.978. The dollar set a fresh low of $1.4752 versus the euro and fell to Y110.52 against the yen.

Full article here.

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