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Tuesday, June 13, 2006

Higher Interest Rates Hurts the Global Markets Over 2 Trillion

Higher Interest Rates Hurts the Global Markets Over 2 Trillion - Investors have been dumping anything they hold on fears that higher inflation and higher us interest rates will hurt global economic growth. source : Reuters

"It is essentially one consistent story worldwide, starting here in the U.S. There is a fear that the Fed's repeated commitment to limiting inflation demonstrates a willingness to risk economic activity," said Christopher Low, chief economist at FTN Financial in New York.

Us stock markets erase all gains for the year and start to go south. The Dow Jones industrial average is off 8.2 percent since mid-May, the Nasdaq Composite Index is off 12.75 percent from its high for the year on April 19 and the Standard & Poor's 500 Index has fallen by nearly 8 percent from its May peaks.

The sutuation is the same with virtually all the global markets....

On Tuesday, Tokyo's Nikkei average had its biggest one-day percentage fall in two years, tumbling 4.14 percent. In Europe, the FTSEurofirst 300 index of top European shares has fallen about 11 percent since May 11.

Since its year high hit in early May, the MSCI World Index of global stocks has lost $1.9 trillion in market capitalization, nearly 12 percent of its value.

And according to JPMorgan Chase & Co.'s, the global sell-off, however, is not over and may only be just starting, according to global equity strategist Abhijit Chakrabortti.

"This is nothing compared with what we may see late in the summer and early October -- once slower growth finally sinks in and expectations for higher benchmark rates, at 6 percent or even more, come out," Chakrabortti told the Reuters Investment Outlook Summit in New York.

As for the dollar? Well the recent determination of the fed to curb inflation no matter what help the dollar climb to a multi-week hi against all majors. It closed at 1.2545 against the eur gaining 35 pips, and at 1.8343 against the gbp gaining 80 pips. Thanks for reading my blog and please feel free to leave a comment about the effects of higher interest rates, or about anything you like.


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