LONDON (AP) ó World stock markets fell Wednesday after a downbeat forecast from the second biggest U.S. shipper of goods FedEx Corp. as well as ratings downgrades from Standard & Poor’s.
In Europe, the FTSE 100 index of leading British shares was down 42.90 points, or 1 percent, at 4,285.67 while Germany’s DAX fell 58.24 points, or 1.2 percent, to 4,832.48. The CAC-40 in France was 35.56 points, or 1.1 percent, lower at 3,178.39.
On Wall Street, the Dow Jones industrial average was down 12.10 points, or 0.1 percent, at 8,492.57 soon after the open while thebroader Standard & Poor’s 500 index fell 3.24 points, or 0.4 percent, to 908.73.
Stocks around the world were already in retreat amid worries that the rally since March may have been overdone. With some indexes up more than 50 percent since March on expectations of an economic turnaround this year, markets reacted negatively to some weaker than anticipated U.S. industrial data.
The stock market rally since March’s lows has been fueled by hopes that the U.S. economy in particular will recover from recession sooner than previously anticipated. As equities usually start rising 6 to 9 months before actual recovery emerges in the official data, this suggests investors believed the massive sell-off in markets during the most acute phase of the financial crisis was overdone. Some of the world’s major equity indexes are now in positive territory for 2009.
That optimism has dissipated in recent days, however. Rising interest rates on U.S. government bonds and higher oil prices have combined to worry investors that any recovery around the world could be choked off at birth.
Sentiment was not helped by the warning from FedEx ó considered a bellwether of economic activity ó that it expects “extremely difficult” conditions in the next two quarters and by Standard & Poor’s decision to cut its ratings on 22 U.S. banks, including BB&T Corp. and PNIC Financial Services Group Inc.
“Further falls in stock markets is suggestive of more risk being taken off the table today as the market worries about the strength of the ‘green shoots’ of recovery,” said Jane Foley, research director at Forex.com.
One bright spot emerged with the news that consumer prices in the U.S. rose less than expected in May. Investors have been worrying that increasing prices would threaten a recovery in the economy by curbing demand. Instead of the 0.3 percent monthly increase predicted, inflation only rose by 0.1 percent.
“Inflation fears that have gripped the bond market continue to be more imaginary than real as the May CPI came in below expectations and the annual decline (1.3 percent) in the headline is the largest in about 60 years,” said Steven Ricchiuto, chief economist at Mizuho Securities.
Overall, investors, it seems, are awaiting signs that the rally since March wasn’t just misplaced euphoria.
They now want to see clear evidence that the world economy and company earnings are recovering so that current stock valuations make sense. In March, many investors saw valuations around the world as particularly cheap and started buying into the market.
Neil Mackinnon, chief economist at ECU Group, noted that the S&P 500 in the U.S. is “not cheap” at the moment at 16 times earnings and that the 925 level “is starting to falter.”
Earlier in Asia, Hong Kong’s Hang Seng index dropped 80.90 points, or 0.5 percent, to 18,084.60, though Japan’s Nikkei bucked the downward trend, gaining 87.97 points, or 0.9 percent, to 9,840.85.
Elsewhere in Asia, South Korea’s Kospi shed 0.6 percent to 1,391.17 while Australia’s benchmark fell 1.5 percent
Shanghai’s stock measure recovered the session’s losses to close higher by 1.2 percent, as investors found encouragement in comments from President Hu Jintao. Hu said Tuesday that Beijing’s stimulus is showing results and China is determined to take the lead in emerging from the global economic crisis.
Investors were wary after the Chinese government last week reported conflicting data showing exports falling but consumer spending and investment rising.
Oil prices were slightly softer, with benchmark crude for July delivery down 57 cents to $69.90.
In currencies, the dollar was down 0.4 percent at 95.85 yen while the euro rose 0.4 percent to $1.3874.