Global market slide may have further to go

The extent of the turbulence was exemplified in a wave of selling last Tuesday, which saw more than 4 percent wiped off the value of the Japanese market, together with even larger falls in so-called emerging markets. In Russia, the RTS index plunged 9.4 percent, Indian markets dropped 4.4 percent, Turkey 5.7 percent, while European markets fell 2.1 percent.

In the US, Wall Street was hit by a two-week decline that wiped out the year’s gains in every major index before a rebound on Wednesday, which saw the Dow climb by 110 points. Sometimes referred to as Wall Street’s fear gauge, the Vix index, which measures market volatility, has been at its highest level in more than two years.

The most widespread explanation for the slide is that investors have been dumping stocks, so-called “emerging market” assets, metals and other commodities because of fears that interest rates world-wide are going to tighten.

Clear indications have emerged that the US Federal Reserve Board, which has been steadily increasing rates over the past two years, has at least one further increase in the pipeline and possibly more. Commenting in early June on US price data, which showed a core inflation rate of 2.3 percent in the year to May, Fed chairman Ben Bernanke said inflation was “at or above the upper end of the range that many economists, including myself, would consider consistent with price stability and the promotion of maximum long-run growth”.

More
http://wsws.org/articles/2006/jun2006/mark-j17.shtml