It is shaping up as the disaster of all the financial disasters we have seen so far. Iceland, a country of perhaps 320,000 people, stuck at the top of the world, has become a sort of single point of reference for the credit binge and freeze.It could very well be the first company to go into bankruptcy as a result of its credit binge being killed off by the crunch, now freeze.Only some help from neighbours willing to risk billions and perhaps never see the money again will see the country avoid being bankrupted. Talks start with Russia on a 3 billion euro loan next Tuesday.No repeat of Argentina or Russia defaulting on debts: in those cases default was a last option for desperate and at times venal politicians and businesses leaders.Iceland has no option: bankruptcy for the entire country is the only option: the Government has sporadic discussions with the International Monetary Fund which could help, but seemingly is resisting the obvious cost.But the entire financial system is rotten, too much debt, too little equity and just no prospects for recovery in Iceland, and in Europe, especially Britain.Three major banks all seized by the government: Number 3 Glitnir was put into administration yesterday after the Government abandoned attempts to keep it alive, Landsbanki seized earlier this week, setting off a major row with Britain over billions of pounds of UK savers money and yesterday the largest bank, Kaupthing was seized by the Government which ended an attempt to maintain it as a 'national champion'.The trio of banks had debts of & #36;US61 billion, 12 times the Icelandic economy: with a total of & #36;11 billion euros of debt (around & #36;US15 billion) falling due this year and in 2009. & #160;The banking system has all but collapsed and the Government will try and build a new bank from the ruins of the trio.The Government shoved up interest rates to try and stabilise the situation and the krona, but to no avail. Trading on the country's stockmarket has been shut down until Monday. & #160;Instead a sharp slowdown emerged with gross domestic product contracting by almost 4% in the March quarter of this year, compared with the December 2007 quarter.The size of the accumulated imbalances is astounding: the external deficit was 25% of GDP in 2006 and 17% in 2007. Gross short-term foreign debt amounted to 15 times the value of the central bank's foreign exchange reserves at the end of 2007, or roughly 200% of GDP. Gross long-term foreign debt amounted to another 350% of GDP.Bank assets were running at 10 times GDP by the end of last year. All this to buy stakes in companies, soccer clubs and other assets in Britain, Denmark, the US and elsewhere.And even now some commentators hold out hope for it. If you were a creditor, what would you do, invest more in the US or throw good money after bad in Iceland. Some of its offshore investments (such as the UK retail chain, The House of Fraser) will make juicy and bargain buys for people with money.But there won't be any favours and the price will be low and the losses high for Icelandic banks, entrepreneurs and the country as a whole. There is no way the country can meet the private debts of its banks.Iceland is nothing more than the impending collapse of the most over-geared country in the world. It is a combination of Lehman Brothers, Bear Stearns, AIG and any other basket case we have seen, rolled up into one snowballing disaster. A financial black hole in the making.The banks are stuffed, investment companies are stuffed, the central bank is powerless, the government stranded: if you have no reserves or money, nothing can be done. & #160;Pension funds have billions of dollars of investments in overseas accounts, but they have been badly damaged by the slump ( & #36;US11.8 billion a few months ago, according to reports this week).The Government is looking for a loan from Russia of around & #36;US5 billion perhaps; Sweden's central bank has extended a & #36;US700 million loan to a wobbly bank's Swedish subsidiary to protect Swedish depositors. That bank has now collapsed.So bad were the affairs of Glitnir, the third largest, that the Government washed its hands of it, 10 days after rescuing it in a & #36;US1 billion deal, handed it over to the country's financial regulator and sacked the board and senior managers.But there is now an unholy row now with Britain as that was the country of choice for the banks to finance Icelandic businesses to invest in: many of whom had shareholding or board associations with the very banks now failing.The toll is going to be extensive and the UK Government will probably have to find well over & #36;US7 billion to bailout individuals, companies, charities, local and regional government bodies who had billions of dollars invested in the two main banking arms of Iceland's two biggest banks, Icesave (owned by the tottering Landsbanki) and Kaupthing Edge. These were mainly online banking operations run out of Iceland which harvested deposits in the UK.UK reports said the Government expected Iceland's depositor compensation scheme to cover about £2.2 billion of the £4.6 billion owed to about 300,000 Landsbanki depositors, with £1.4 billion coming from the UK industry financial services compensation scheme and the remainder from the government. That of course presupposes that Iceland has the money to meet the cost of the guarantees.The Treasury said the Government would have to cover much of the compensation scheme's contribution because it didn't enough money. The Government would look to recoup the taxpayers' contribution from the proceeds of the sale of Landsbanki's estimated £7 billion of UK assets. But even their some losses will be taken because asset values are falling for many of the investments in the UK.Kaupthing Singer Friedlander, the UK arm of the weakened Kaupthing bank of Iceland, was put into administration on Wednesday night by the UK Government to protect investors.That was after Singer had inflicted huge losses, estimated at & #36;US2 billion on London entrepreneur, Robert Tchenguiz (His brother Vincent earlier this year tried to takeover a fund managed by Challenger and built a & #36;320 million stake through a company called Arkmile. The assault was called off in August when Arkmile and Challenger reached some sort of agreement).London media reports said Mr Tchenguize property entrepreneur, lost £1 billion in 24 hours when Singer Friedlander forced him to sell his shareholdings in leading retailer, J Sainsbury and pubs group, Mitchells & #38; Butlers.The Financial Times said Mr Tchenguiz had lost up to £600 million on the sale of a 10% stake in Sainsbury's (Britain's third-biggest supermarket chain) and about another £400 million on being sold out of his 25% of M & #38;B (as it is known in London).Kaupthing Singer & #38; Friedlander is reported to have forced the sales as it sought to generate cash by selling assets and cutting its loan and other exposures, raise cash and scale back its loan exposures. It went into administration after the sales went through.The London Times reports that dozens of local councils risk losing hundreds of millions of pounds of taxpayers' money held in Iceland's stricken banks.Town halls across the country may have to raise council tax and cut services as the repercussions of the collapse of the Icelandic economy broadened into a diplomatic row with Britain. & quot;Alistair Darling, the Chancellor, pledged yesterday to make good all losses suffered by the 300,000 British savers caught by the collapse of Icesave, the online bank that went into receivership on Tuesday, & quot; the paper reported yesterday. & quot;The move will cost the Treasury about £4.5 billion - and carried an implicit pledge from Mr Darling that he would do the same if other banks collapsed. The Government also seized control of the British arm of Iceland's Kaupthing bank because it could not honour its obligations to customers.The Times and other papers said the UK Government used anti-terrorism powers to freeze an estimated £4 billion of British financial assets in Landsbanki, Icesave's parent bank. & quot;Authorities in London are believed to have about £200 million in Icelandic banks. They include Westminster, which said it had £17 million split between Landsbanki and Heritable; Sutton - £5.5 million - and Havering, which has investments totalling £12.5 million. Outside the capital, Kent County Council said that it had £50 million deposited in Icelandic banks - £15 million with Glitnir Bank, £17 million with Landsbanki and just over £18 million in its British subsidiary, Heritable. & quot;The Government flicked Glitnir, the third biggest bank, to the financial regulator, using emergency nationalisation powers that were used on Tuesday to drive the nationalisation of Landsbanki. Of the three big banks that powered Iceland's financial services boom, only Kaupthing remains independent.An Icelandic businessman, Jon Asgeir Johannesson, controlled the biggest stake in Glitnir and also chaired Baugur, the retail company that owns several British retail chains (House of Fraser) & #160;He has been now wiped out, leaving the fate of those UK retailers up in the air at a time when the sector is slowly going backwards as the recession rolls over the country. Bagur owns a string of stakes in listed retailers here & #160;and unlisted groups in the UK, US and Europe.Kaupthing bank received just on & #36;US1 billion from Iceland's central bank and has said it was & quot;helping & quot; the government with the restructuring of Glitnir. That ended with yesterday's seizure.Dutch banking and insurance group, ING said its UK online and phone banking subsidiary had agreed to buy £3 billion in UK deposits at two Icelandic banks for an undisclosed sum.The Dutch group said its ING Direct unit (which operates in Australia) was taking on £2.5 billion in deposits from customers at Kaupthing Edge, the UK online arm of Kaupthing, the Icelandic lender, and £538million in savings deposits at Heritable Bank, which is owned by Landsbanki, the Icelandic lender that failed and went into receivership on Tuesday.And Iceland had ended attempts to strengthen the krona by pegging it to a rate of 131 to the euro.The answer is simple: the market doesn't believe that rate, or any other. Investors are looking at one very important ratio: & #160;Iceland's banking system is collapsing under the weight of debts equal to 12 times the size of the economy.The market has been looking at a value of over 200 krona to the euro and more. In fact the last quote was 340 to the euro. It wasn't traded Thursday in the spot market.If something isn't done soon to stabilise the situation the country faces the prospect of a post World War 1 hyper inflation and economic implosion. & #160;

A bad day for shares again.But did we see a steadying emerge in late US trading?After bouncing all over the place and mostly in the red, the US markets looked like closing with a small gain, but anther late burst of selling saw the major indexes end off up to 2% or so.The Dow fell 190 points, or 2%, the Standard & #38; Poor's 500 index fell 1.1% and Nasdaq dropped lost 0.8%.The major indexes again swung wildly throughout the session, with the Dow down as much as 252 points and up as much as 180.The Dow's fall was also due to the weakness in Alcoa which reported a 52% slump in third quarter earnings the night before. Alcoa fell 13%.Gold rose, then eased, but was still up, copper and oil weakened and some grains were firmer in & #160;Chicago.Gold was up & #36;US27 an ounce to around & #36;US909 in New York.Our market was looking to start higher, but the late drop on Wall Street pushed the futures market down by 12 points.The co-ordinated interest rate cuts from the Fed, the ECB, the Swiss, Swedish, Canadian and the UK central banks helped: the 0.50% drop in each case was dramatic, but emphasised the forcefulness of our 1% cut from the RBA which has put Australia firmly ahead of the policy curve.China wasn't a part of the deal, but trimmed its key rate by 0.27% in a surprise move.European markets were down sharply last night with falls of 3% to 5% common for another day. Japan fell more than 9% and other Asian markets were off more than 5%. Hong Kong's Hang Seng dropped 8.2% in an example of near panic trading, just like Tokyo.London was very weak on the looming bailout fund announcement for the country's banks from the UK Government. London's FTSE 100 fell nearly 8% early on as investors were unconvinced about the bailout package.Europe's Stoxx 600 Index was off 6% taking its loss this week so far to 13%. But the selling eased and it recovered from being down almost 8% atone stage.The London FTSE 100 index of leading shares shed 5.2% after the bank bailout plan was announced, while in Paris the CAC 40 fell 6.4%.Frankfurt's DAX lost 5.8%, the Swiss market shed 5.5% and 5.2% in Madrid after the Government there revealed a bailout plan. Milan fell 5.7% after it was suggested the country's banks needed to raise more capital.The MSCI Asia Pacific Index fell 7.4% with Tokyo's Nikkei off 9.4%, the biggest drop since October 1987. Australia lost 5% or more, Indonesia shut after a 10% fall and Hong Kong's Hang Seng fell to a fresh 2 year low despite an effective rate cut.The Index is now off more than 42% this yearIn Europe Russia's market was again closed after the main index fell more than 10%. The main US dollar index was off 14% when trading stopped. trading was also halted in the Ukraine and in Rumania.The euphoria of Australia's rate cut on Tuesday was swamped after Wall Street fell more than 5% in a miserable day's trading that extended across the region.Oil was easier, down by more than & #36;US4 to just over & #36;US86 a barrel, a 10 month low; copper lost ground to around & #36;US2.49 a pound and gold edged up & #36;US4 to trade around & #36;US886 in Europe last night.The Indonesian market was halted when the main index fell more than 10%. Jakarta's main index has tumbled 21% in the past week; the biggest drop in 25 years. Brazil's market was at two year lows. It's down 22% in the past five days.The Nikkei plunged 9.4%, its biggest one-day drop since the 1987 stock market crash, as fear spread of a global recession, fuelled by expectations of a slide in profits at Toyota and the rapidly firming yen. & #160;Volkswagen this week moved past a falling toyota to become the world's biggest car maker by market value. Volkswagen is subject to takeover speculation in Germany.Tokyo brokers said that panic over the fast-spreading financial crisis dragged down markets across the region and in Japan the Nikkei set another five-year closing low.The Hang Seng slumped 5.5% despite Hong Kong's monetary authority cutting interest rates to keep the credit crisis from spreading.India's Sensex Index fell 3.1%; China's CSI 300 lost 3.8% and South Korea's Kospi lost 5.8% to the lowest since July 2006. & #160;Australia's ASX 200 Index declined more than 5% as building approvals declined for a seventh month and consumer confidence fell. Alumina, an associate of Alcoa, lost ground after partner Alcoa reported a 52% drop in earnings. Alumina shares closed down 16% at & #36;A2.50.It was Australia's second-worst day of the year, closing down 5%, wiping out all of Tuesday's Reserve Bank-inspired rally and adding more than 3% in losses for good measure.It was also the lowest close in three years for the stockmarket, while the Aussie dollar also plunged, hitting a low of well under 68 US cents (67.49 US cents in local trading)The ASX200 index closed 230.6 points, or 5%, lower at 4388.1. The fall was second only to January 22's 7.1% hammering.Among the banks, the ANZ Bank lost 6.3%, or & #36;1.15, to & #36;17.00, while NAB shed & #36;1.65, or 6.4%, to & #36;24.35.Westpac dropped 6.9% or & #36;1.60, to & #36;21.67. The Commonwealth was in a trading halt after announcing it would pay & #36;2.1 billion for BankWest, raising some & #36;2 billion from institutional investors. St George lost & #160;7.4%, or & #36;2.24, to & #36;28.12 and Suncorp shed 8.1%, or 89 cents, to & #36;10.11.Macquarie Group shares lost 9.2%, or & #36;3.30, to & #36;32.50 and Babcock and Brown fell 20%, or 25.5 cents, to & #36;1.05.Mining companies were again savaged as investors ignored the impact of a falling Australian dollar to focus on the worsening commodity prices and diminishing prospects for global economic growth.BHP Billiton lost 5.7%, or & #36;1.80, to & #36;29.90, while its takeover target, Rio Tinto dropped 7.6%, or & #36;6.65, to & #36;81.12. & #160;

The UK Government is to offer more than & #36;A1.2 trillion in loans and guarantees in an effort to support the country's tottering banking sector.The package, rumoured for a day or more, is much larger than first thought.The government is to put up to 250 billion pounds (Well over & #36;A640 billion at current exchange rates) into the banking system in an effort to keep banks lending.It will also offer a guarantee to banks issuing medium term debt, which could mean a further 250 billion of guarantees for bank borrowings.But the downside is likely to dividend cuts and the end of big bonuses at the banks for executives and high flyers.But the scheme failed to halt a slide in many banks' share prices, with Royal Bank of Scotland down again overnight in early trading after a near-40 per cent slide on Tuesday.The FTSE 100 plunged 7.8% in an immediate reaction, taking the index to levels last seen in October 2003. It later recovered a touch to end down 4.8%.HBOS, which is being taken over by Lloyds TSB in a government-driven deal saw its shares recover from the sell off earlier in the week. they ended up 50% at 139p. It had earlier sold off its Australian business to the CBA.RBS, which had plunged almost 40% on Tuesday, closed off 1.9% & #160;at 88.4p having been as much as 10 per cent lower at one stage.Lloyds TSB slipped 0.2% and Barclays lost 7.1%. HSBC was 4.6%lower at the close and Standard Chartered fell 8%.Under the plan, announced by the Treasury & #160;last night, seven leading banks and the Nationwide Building Society will first up apply for 25 billion ( & #36;A64 billion) in permanent capital to raise their Tier One capital ratios, and a similar amount will be made available as a stand-by and for other eligible institutions. The banks have agreed to conclude their recapitalisation by the end of the year.The banks involved are Abbey, now part of Santander of Spain, Barclays (which bought part or Lehman Brothers last month), HBOS, which is merging with Lloyds TSB, (which in included), the giant HSBC, Royal Bank of Scotland, Standard Chartered (which operates mainly in Asia) as well as Nationwide.Other UK banks and building societies are being invited to apply for the scheme as well.Although HSBC is included in the list of eligible institutions, this refers to its UK subsidiary, not its holding company. HSBC said its UK unit would observe the requirements on Tier 1 capital but would do so from its own resources and had & quot;no current plans & quot; to participate in the scheme. & quot;Following discussions convened by HM Treasury... major UK banks and the largest building society have confirmed their participation in a government-supported recapitalisation scheme, & quot; the statement said.The Treasury said the Bank of England would provide at least 200 billion pounds under its special liquidity scheme - under which banks can swap illiquid loans for risk-free government securities - & quot;until markets stabilise & quot;. & quot;The Bank of England will take all actions necessary to ensure that the banking system has access to sufficient liquidity, & quot; the Bank said. & quot;In its provision of short-term liquidity the Bank will extend and widen its facilities in whatever way is necessary to ensure the stability of the system. & quot;A few hours later, the Bank of England cut its key rate 0.50% to 4.5% as part of a co-ordinated set of cuts by central banks in the US and Europe.Elsewhere in Europe, Spain set up a bank loan fund. The Bank of Japan lent & #36;US20 billion to its money markets, the Reserve Bank here more than & #36;A1 billion, and also significantly widened the types of collateral it would take for loans to banks and greatly lengthened the period for which it would lend.Now it will do repurchase deals in self-securitised home loans and commercial paper. This will allow the banks to get liquidity as foreign borrowings roll off and mature, but can't be replenished.Between & #36;A60 billion and & #36;100 billion is estimated to be involved in both types of securitised paper.Hong Kong cut the borrowing rate it charged banks by a full 1% and there were reports China might soon cut its interest rates.The Federal Reserve took the radical step of lending to companies directly and signalled a new readiness to ease US interest rates.Spain will spend as much as 50 billion euros ( & #36;US96 billion or well over & #36;A112 billion) to buy bank assets. It was the first move by a European nation to copy the US strategy.The Government announced that it will boost its guarantee for deposits in its banks to 100,000 euros ( & #36;A189,000) and set up a 30 billion euro ( & #36;A56.7 billion) fund to buy assets from banks and keep credit flowing to the economy.Prime Minister Jose Luis Rodriguez Zapatero told a news conference the guarantee was double the minimum agreed at that European finance ministers' meeting in Luxembourg earlier on Tuesday.Spain's banks have been better regulated than elsewhere in Europe, have so far been spared the havoc generated by the subprime/CDO disasters that have crippled banks in the US, UK and Germany.But now the central bank, the Bank of Spain has said for the first time that the country's banks could be forced into mergers.Many smaller & #160;institutions and savings banks are most exposed to the liquidity drought in financial markets and are suffering the most from Spain's own great financial disaster, its housing collapse.One of the country's main banks, Banco Santander has expanded in the UK during the current problems by buying one and half weak banks that were formerly building societies.The government says the bail out fund can be expanded to 50 billion euros. It will buy assets from banks in order to ensure they keep lending.And in Australia, the Reserve Bank will allow banks to use their self securitised home loans and commercial paper holdings to be used as collateral in doing 6 month and 12 month repurchase deals to gain liquidity. & #160;It's a significant change of policy and will allow the banks to raise funds domestically to replace loans from offshore that can't be rolled over in the present credit freeze. & #160; & #160;

The US economy is in far worse shape than many in the US think, and is heading for a hard landing.American consumers, who account for 70% of demand and consumption in the huge, & #36;US14.4 trillion economy, are in trouble and cutting back spending, thanks to falling levels of credit.In fact the credit cuts are now much deeper than anyone thought after the release of up to date figures.The IMF said overnight that the US appeared to be sinking into a recession, it said.The Fund said in its latest World Economic Outlook that the US was now poised to expand 1.6% this year and a bare 0.1% in 2009.That was an increase of 0.3% and a decrease of 0.7%, respectively from the prior forecast just three months ago, in which the IMF had lifted its April WEO forecasts, citing improving economic conditions in the US.That improvement for this year relates to the 2.8% rise in second quarter economic growth. & #160;The estimates were made before the latest figures though on consumer borrowing which tell a story of US consumers cutting back, or being cut back on credit, the lifeblood of the economy.Figures for September store sales from some major retailers overnight showed sluggish growth for most, with downturns for those selling more expensive products, such as department stores.Wall Mart managed a 2.4% rise in same store sales, but that was less than forecast, discount bulk chains lost Costco did OK, but Target reported a 3% drop in comparable store sales.JC Penny, the big department store chain reported a massive 12.4% drop in same store sales in September, far worse than expected.But it's no wonder after the Fed's earlier report.Figures Tuesday night from the Federal Reserve on consumer credit show the biggest fall in the history of the recorded figures.At the same time major industrial, Alcoa, suffered a 52% drop in third quarter earnings and has joined the mighty General Electric in eliminating a share buyback to conserve capital.The national body for US car dealers warned that 700 would go out of business this year alone, and more would follow in 2009, if the credit freeze was not eased soon. Car sales fell 27% last month and the way the credit freeze is working, that drop will increase in the coming quarter.And in a dramatic move the Fed extended the boundaries of its 'Lender of Last Resort' understanding by supplanting temporarily the frozen & #36;US1.6 trillion commercial paper market, the day to day lifeblood for American business activity.At the same time Fed chairman, Ben Bernanke held out hopes for a rate cut, but said the US economy was heading into tougher times.The Fed said it would set up a new Commercial Paper Funding Facility to buy three-month debt from banks and non-financial companies.It's probably one of its most important decisions because if this vital short term debt can't be rolled over for US companies (end employers) when it falls due; the American economy will be crunched to a halt.The move was desperately needed with figures showing that 28% of the market would fall due this week and a further 12% next week.The Fed's figures last Friday showed that in the week to last Wednesday, the market had already contracted & #36;US215 billion in the past three weeks and virtually all new lending was being done overnight.If that 28% to 40% of that huge amount can't be rolled over, the US economy will be crunched by the end of October at the latest, so the Fed had to act.Without the Fed's move to being a sort of bank, the US economy will crunch to a complete halt in a matter of weeks, throwing hundreds of thousands of people out of work and setting off a domino chain of corporate failures across all sectors.This freeze in the commercial paper market is why the likes of Alcoa and GE have cut their share buybacks and why Bank of America cut its dividend by 50% and is seeking to raise & #36;US10 billion in new capital.It has to support the acquisitions of Countrywide Financial Services and Merrill Lynch and the added burdens they will impose on its finances: but it is like all other banks and has cut lending across the board.,But it's clear consumers, the engine of the US economy, were being denied credit by banks and other lenders well before the eruption of this latest phase when the credit crunch turned to a freeze.But there's nothing the Fed can do immediately to ease the squeeze on consumers: each week tens of thousands of them are losing their jobs, their homes, having their pay cut and hours trimmed and are being denied credit at a rate not thought possible until the Fed released the credit figures for August, a month before the crisis worsened with the spate of failures and bailouts in the US starting with Lehman Brothers.The Fed reported that & #160;consumer credit fell by & #36;US7.9 billion in August, the biggest fall since the statistics began being collected in 1943, to & #36;US2.58 trillion.Bloomberg said that economists forecast an increase of & #36;US5 billion in consumer credit during August, so the Fed's report came as a complete shock to the market.Total consumer borrowing dropped at a rate of 4.3% in August, the most since January 1998.Revolving debt such as credit cards decreased by & #36;US612 million during August and non-revolving debt, including auto loans, dropped by & #36;US7.3 billion.That fall was a month before the 27% plunge in US car sales last month, so it's likely that consumer credit again fell sharply in September.The news of the Fed's move and the sharp contraction in consumer credit (one of the Fed's 'Key Economic Indicators') makes it easier to understand the contents of a speech overnight by chairman, Ben Bernanke in which he painted a gloomy picture of the US economy.He would have known of the move to try and stop the rot in the commercial paper market and the sharp fall in consumer credit, so it was no wonder he was saying: & quot;Economic activity had shown signs of decelerating even before the recent upsurge in financial-market tensions.As has been the case for some time, the housing market continues to be a primary source of weakness in the real economy as well as in the financial markets. However, the slowdown in economic activity has spread outside the housing sector. & quot;Private payrolls have continued to contract, and the declines in employment, together with earlier increases in food and energy prices, have eroded the purchasing power of households. This sluggishness of real incomes, together with tighter credit and declining household wealth, is now showing through more clearly to consumer spending. & quot;Indeed, since May, real consumer outlays have contracted significantly. Meanwhile, in the business sector, worsening sales prospects and a heightened sense of uncertainty have begun to weigh more heavily on investment spending as well. & quot;The intensification of financial turmoil and the further impairment of the functioning of credit markets seem likely to increase the restraint on economic activity in the period ahead. & quot; & quot;All told, economic activity is likely to be subdued during the remainder of this year and into next year. The heightened financial turmoil that we have experienced of late may well lengthen the period of weak economic performance and further increase the risks to growth. & quot;To support growth and reduce the downside risks, continued efforts to stabilize the financial markets are essential. The Federal Reserve will continue to use the tools at its disposal to improve market functioning and liquidity. & quot;Meanwhile the chairwoman of the National Automobile Dealers Association says the credit crunch and economic problems are likely to cause 700 auto dealers in the US to go under this year.Speaking to the Automotive Press Association in Detroit, Annette Sykora said quick action will be needed to ease the squeeze and restore consumer confidence and help the industry.An estimated 94% of American car buyers finance their purchases, Ms Sykora says but even those with good to high scores and solid credit records can't get financing.Dealers with good credit also are having trouble getting financing for their inventories.It's the same story in home lending and also in credit cards where credit lines and revolving credit arrangements are being terminated or refused.According to the National Auto Dealers Association, there are around 20,000 auto dealers in the US. About 430 dealerships closed last year and 295 closed in 2006.The estimate of 700 dealers going out of business does not include new dealers that will enter the market.According to the Fed's credit figures, lenders were cutting back on car loans (and other credit in August) and car sales fell 11% in the month. The 27% fall in September reflects the intensification of the credit freeze and helps explain why car sales sank 27% to less than 1 million for the month for the first time since 1993.Some buyers are not committing because they fear for their jobs or can't get the right vehicle when they are looking for more fuel-efficient models.Regardless of the reason, it means consumers are spending less. September's retail sales figures are out in about 10 days or so and are likely to make miserable reading, along with the consumer spending figures a little later in October. & #160;

Home loans tumbled in August for a 7th successive month and consumer confidence plunged in October, so the question now is whether Tuesday's 1% rate cut from the Reserve Bank will have any impact in reversing those trends.In New Zealand business and consumer confidence picked up after the surprise 0.50% cut last month, so there's a chance there will be an improvement in confidence levels at least next month.But in view of the worsening state of the global economy and the credit freeze, any benefit won't be long lasting.But the RBA will continue cutting, and we will get at least another 0.50% in reductions by the end of the year, and possibly more if conditions continue at current fraught levels.Major central banks in the US and Europe cut rates last night by 0.50% and China trimmed its rate by 0.27%.The stockmarket fell sharply yesterday as America's latest stampede out of stocks offset the bounce from the 1% rate cut by the Reserve Bank.The 5%-plus fall was a worry. Banks fell sharply.The Reserve Bank again pushed cash into the money market to maintain a high level of liquidity and the banks boosted the amount they keep at the RBA in their exchange settlement accounts to & #36;A9.7 billion.And there was that fall in consumer confidence which tumbled this month after a small recovery in September.The index fell 11% from September to 82 points, according to the latest survey from Westpac and the Melbourne Institute.It was the ninth straight monthly reading of less than 100, showing pessimists continue to dominate optimists. The survey was taken before the shock rate cut.Westpac's head of economics, Bill Evans said in a statement that since the stock market crash in 1987, there have been only nine months when the index has fallen by more than 11%.He said the latest drop was sparked by the escalation of the credit crisis midway through last month.Westpac's survey of 1,200 consumers was conducted between September 30 and Sunday of this week, October 5.The drop in home loan approvals supported the rate cut decision, but rate rises and reductions take their time to work and it's likely that confidence will play an important part in the short term in having any impact on home lending.The Australian Bureau of Statistics said the number of loans granted to build or buy homes and apartments fell 2.2% in August from July, when they slid a revised 0.9%.The fall was double the market estimate for a drop of around 1%.The total value of lending fell 3% to & #36;A17.5 billion in August and lending to owner/occupiers dropped 2.1%, while the value of lending to investors who plan to rent or resell homes fell 5%.The 2.2% fall in the number of loans approved, seasonally adjusted to 48,903, was the lowest number since March 2001.Housing finance commitments have dropped by 27.1% since the recent peak at 67,126 in January 2008.Even more dramatic, there was a 46.5% fall in purchases of new homes year on year in August.That's pointing to very weak conditions which won't be reversed quickly.Figures for the rest of the year are likely to be sluggish at best. & #160;

The Commonwealth Bank is now too big to fail now, if ever we ever needed it confirmedThe CBA is buying the Australian assets of struggling UK lender, HBOS at a knockdown cost of & #36;A2.1 billion, and raising & #36;2 billion in fresh capital from the market and shareholders.HBOS Australia's main asset is the Perth-based Bankwest, and the St Andrews financial services offshoot.Its UK & #160;parent is in trouble and the sale to the CBA was a 'distressed' deal: more a 'steal' than a 'deal' for the CBA.The CBA share price was halted yesterday at & #36;45.15 to allow the & #36;2 billion capital raising to occur.It's not that the CBA is a marginal player either getting bigger: it already dominates the deposits market and home mortgage markets (Home mortgages are important assets because they take less capital than other forms of lending).As a result after buying BankWest, the CBA will be a giant with 33.7% of the deposits market and 22.7% of the home loan market. That will put it back in front of Westpac and after its merger with St George.So perhaps we need greater control and regulations to stop it and its managers abusing the dominant position and the one day losing their head in some orgy of credit giveaways of the type we saw in the US a few years ago.The CBA had an off balance sheet conduit which they quickly closed in the last quarter of 2007 and brought the assets and liabilities back on to the balance sheet when they couldn't sell them all.Conduits like that held by banks in the US, UK, France, Ireland, China, Germany and elsewhere created many of the early problems in the crunch as underlying assets went bad, short term loans could not be rolled over and huge losses had to be taken.Our banks were lucky; they were late into the rort which was designed to boost yield and returns and of course bottom line earnings, and management bonuses.But as we found Tuesday night the CBA is only passing through 0.80% of the 1% rate cut from the Reserve Bank.So we are left with the situation of the Bank buying BankWest and boasting about carrying & quot;surplus capital & quot;, but the nation's biggest home lender won't pass on the full 100 basis point cut in official interest rates.According to recent research from Merrill Lynch and ABN Amro they Commonwealth Bank would have had to pay as much as & #36;A4 billion for the two units for the assets in HBOS they have bought.That's caused some analysts to wonder about the quality of the assets being bought and the profitability of the two groups, especially Bankwest.But these analysts failed to understand that HBOS is a forced seller: it's being merged into Lloyds TSB in London to save it. Haven't these analysts been through a recession before where there are forced or distressed asset sales?HBOS Australia is clearly one.But not all of HBOS Australia is being bought: the asset financier, Capital Finance wasn't mentioned & #160;in the CBA announcement.Capital was one of the lenders to the troubled Raptis property group on Queensland's Gold Coast that's looking for finance after capital put receivers into entities associated with Raptis' big project at Southport.The future ownership of Capital remains unclear, but if it's HBOS in Scotland, it will end up in Lloyds and probably on the market next year.The Commonwealth Bank got a bargain: it paid 0.8 times book value for the companies it is buying off HBOS. That's less than half the average valuation in the past nine Australian bank deals, according to Commonwealth's market briefing.The Commonwealth said while it had been talking to Suncorp about its Metway banking and the wealth management business, it was no longer involved.HBOS shares dropped 41% in London on Tuesday after news of the UK Government's proposed bank bailout fund was leaked. That took its share price fall for the year so far to 88%.That makes the CBA's buy a very forced 'steal', not a 'deal'.The only factor that could hold it up will be the ACCC. & #160;

The stockmarket rejoiced, rising 1% or more after the news was released, but we should remember the reality of a 1% rate cut.It's essentially confirmation by the Reserve Bank that the good times are not around the corner; in fact it means that tougher times are approaching and the much bigger than expected cut (and more to come) is an attempt to brace the economy to limit the impact.The Reserve Bank's slashing of its key cash rate by an historic 1% to a new level of 6% will also force the banks to pass as bigger rate cut on to bank borrowers as can be passed on.It was all about getting on the front foot for the RBA, a point the National Australia picked up in its comment. & quot;Basically, we see today's RBA statement and in particular the 100 point cut in the cash rate to 6% as an attempt to be pre-emptive and try to stabilise economic and financial conditions in very uncertain times, & quot; the NAB's head of economics, Alan Oster said. & quot;The first two paragraphs of the statement are all about the global liquidity and liquidity crunch and the prospect that it will seriously hurt world activity and Australia's trading partners. & quot;They also say that the real economy in Australia is travelling fairly much as they expected (presumably similar to Nab's growth forecasts). & quot;Basically, the RBA wants to get on the front foot and also significantly lower the cost of funds to banks and in turn borrowers, & quot; he said in a statement last night.The size of the cut not only caught markets by surprise: the banks were also wrong-footed. In September when the 0.25% cut was announced, the majors all had statements ready to roll within 10 minutes of the 2.30 pm announcement.This time there was nothing from the banks for two hours until Westpac revealed a cut of 0.80% in its home loan rate while Aussie Home Loans, 33% owned by the Commonwealth, said it would be cutting by 0.7%. The NAB said it wouldn't reveal its decision until markets had calmed down. (Translation: we want to see what the others do because we are doing it a bit tough with those CDO write-offs etc.).The Commonwealth Bank, the NAB and the ANZ will also cut their standard variable rates by 0.80% from Monday.The RBA's move was also aimed at forcing the banks to pass on more than they perhaps would have if the cuts had been spread over two months.It wanted borrowers to get the biggest possible benefit, and through them, the economy as a whole.It has seen the carnage and destruction of confidence overseas, especially since Mid-September, and is determined that it will try and get us through the storm with as little an impact as possible.But there will be fallout: the central bank fears the economy is slowing faster than expected because global demand is slumping sharply towards a very hard landing and a very deep recession.The cut takes rates back to where they were in August 2006.There's every chance we will get further rate cuts in November and December if global financial and economic conditions continue to worsen.The RBA last cut rates by 1% in May 1992 in a series of five 1% cuts in 13 months from May 1991.The RBA Governor, Glenn Stevens said in the post meeting statement that the board wanted a larger than normal increase to bring about & quot;significant reduction in costs to borrowers & quot;.He also warned that & #160;growth in demand and output could be weaker earlier than expected, which is a nice way of saying that the risks of a quicker than expected slowdown in the economy have risen.He said: & quot;Conditions in international financial markets took a significant turn for the worse in September. & quot;Large-scale financial failures in several major countries were accompanied by serious dislocation in interbank markets and heightened instability in other markets, including sharp falls in share prices. & quot;Official actions in a number of countries have been aimed at restoring stability, by adding to short-term liquidity and laying a foundation for longer-term recovery in the health of balance sheets. Nonetheless, financing is likely to be difficult around the world for some time ahead. & quot;This is also affecting Australia, albeit by less than in many other countries, given the relative strength of the local banking system. & quot;The move flies directly in the face of the long held view in central banking that it's best to work in small increments.In fact there's something of an adage in central banking that the bigger the cut in interest rates, the greater the level of concern about the economy.Central bankers prefer to work in gradations of 0.25%, and even a 0.50% cut is big news and a decision not lightly made.US Fed Chairman, Ben Bernanke raised eyebrows earlier this year when he chopped the Federal Funds Rate by 0.75% a few weeks after cutting it by 0.25%.But the RBA's cut is unprecedented among major central banks around the world.The cut, revealed this afternoon & #160;at 2.30 was made because there had been a material change to the balance of risks surrounding the outlook had occurred, requiring a significantly less restrictive stance of monetary policy.The bank made it clear that the huge cut, last seen in the early months of the 1991 recession, should not be seen & quot;as establishing a pattern for future decisions & quot;.It's a clear one-off and should be seen so.But the RBA made it clear that it was looking to force as greater cut in interest rates into the wider economy as it could.The RBA has noticed the elevated rise in rates in short term markets, but clearly doesn't see this as an impediment. & quot;The Board also took careful note of movements in funding costs in wholesale markets. Having weighed these considerations, the Board decided that, on this occasion, an unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers. & quot;Economic activity in the major countries is also weakening, and evidence is accumulating of a significant moderation in growth in Australia's trading partners in Asia. & quot;Here's the statement in full.At its meeting today, the Board decided to lower the cash rate by 100 basis points to 6.0 per cent, effective 8 October 2008.Conditions in international financial markets took a significant turn for the worse in September. Large-scale financial failures in several major countries were accompanied by serious dislocation in interbank markets and heightened instability in other markets, including sharp falls in share prices. & #160;Official actions in a number of countries have been aimed at restoring stability, by adding to short-term liquidity and laying a foundation for longer-term recovery in the health of balance sheets. & #160;Nonetheless, financing is likely to be difficult around the world for some time ahead. This is also affecting Australia, albeit by less than in many other countries, given the relative strength of the local banking system.Economic activity in the major countries is also weakening, and evidence is accumulating of a significant moderation in growth in Australia's trading partners in Asia. & #160;The expansionary effects of the recent surge in Australia's terms of trade are still coming through, but some decline in the terms of trade now looks likely over the coming year, with many commodity prices having declined from their peaks. & #160;This, combined with the likelihood of below-trend growth in the global economy, suggests that global inflation will moderate in 2009.Thus far, the overall path of economic activity in Australia appears to have been close to what the Board had expected, with the needed moderation in demand occurring. The next CPI is likely to show an increase of around 5 per cent over the four quarters to September, but the Bank remains of the view that inflation will start to decline in 2009.The recent deterioration in prospects for global growth, together with much more difficult market conditions even for creditworthy borrowers, now present the risk that demand and output could be significantly weaker than earlier expected. Should that occur, inflation would most likely fall faster than earlier forecast.Given that background, the Board judged that a material change to the balance of risks surrounding the outlook had occurred, requiring a significantly less restrictive stance of monetary policy. & #160;The Board also took careful note of movements in funding costs in wholesale markets. Having weighed these considerations, the Board decided that, on this occasion, an unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers. & #160;The Board does not, however, regard that movement as establishing a pattern for future decisions.The Board will continue to assess prospects for demand and inflation over the period ahead, and set monetary policy as needed to bring inflation back to the 2-3 per cent target over time. & #160;

The market is down 190 at midday - was down 217 at worst. The SFE Futures predicted a 266 point fall in the market this morning. Property and financials down 4.5% each. Resources underperforming - down 5.4% after finishing up 2.9% yesterday on the back of the RBA-rates-cut-induced 220 point rally.Dow down 508. Up 169 at best. Down 519 at worst. Closed on lows. & #160;Bernanke gave a grim speech on the outlook for economy and the credit crisis. Financials down 11.5% to the lowest level since 1997. The expected co-ordinated global easing of interest rates from the ECB and Fed was not forthcoming. The market initially rallied as the Fed set up a Commercial Paper Facility to improve liquidity in the bond market - wasn't enough to stop the market plummeting on recessionary fears. & #160;Bank of America - second largest financial firm - down 26% after bringing forward its poor 3Q results (down 68%) with a discouraging outlook. Rumours that Mitsubishi UFJ Financial Group is backing out of the deal to buy 24.9% of Morgan Stanley. Morgan Stanley dropped 25%. Technology stocks down 6.1%. The Fed Fund's rate is factoring in a 50% chance for a rate cut on Oct 29th.Commodities up 1% - oil up - gold up and resources mostly down but not as much as the market - BHP and RIO down 3.2% and 4.8%. Bonds and US dollar down.Both BHP and RIO down in ADR form overnight, 3.23% and 4.76% respectively. Both up over 1% in the UK. BHP down & #36;2 on last nights close here.Metals mixed overnight - Nickel down 0.5%, Zinc down 0.13% and Copper up 1.36%. Aluminium up 1.86%.Oil price up & #36;2.03 to & #36;90.18 on signs that OPEC are considering a supply cut.Gold up & #36;15.90 to & #36;882US Bonds down with the 10 year yield up to 3.5%.The Commonwealth Bank has gone into a trading halt as they do a placement to fund the & #36;2.1bn acquisition of BankWest. They also say they have had high level exploratory discussions with Suncorp-Metway but no deal yet. They are doing a & #36;2bn institutional placement and remain in a two day trading halt whilst they do that. They tell us they are comfortable with earnings forecasts and book quality remains sound. Early broker comments say the deal is good for CBA and will add to earnings almost immediately. Will be interesting to see how the institutional placement goes....will be a good test of the market attitude towards the sector.

It couldn't last.The US market plunged, diving 5% or more, driven by heavy selling in the last hour of trading. The markets ended at new five year lows as the gloom continues to envelope American investors.It was the fifth consecutive day of falls and the US market is off around 15% and more. Financial stocks are at their lowest level for 11 years. Real estate stocks also fell in the US.Our market is looking at a 6% plunge this morning with futures trading on the ASX200 showing a 266 point fall at the opening.That will completely reverse the positive note left by the 1% rate cut from the Reserve Bank yesterday.It was another day of volatile trading across the globe and it was less stressed than Monday's dramatic day of plunges until America's 500 point plus plunge on the Dow and 60 point drop on the S & #38;P 500.Gold rose & #36;US27 an ounce to just over & #36;US887, oil rose and traded around & #36;US89 to & #36;US90 a barrel in New York; copper rose, then fell. Only a couple of agricultural commodities rose: soybeans and coca. & #160;The Reserve Bank's 1% rate cut may have shocked our market and investors and halted the slump, but that was all.Today will see a resumption of the doom and gloom selling. Futures markets showed the Japanese markets are looking at another big fall today as well.Not even a big hint of a rate cut from Fed chairman Ben Bernanke could help arrest the slide in the US, nor a plan to bailout the commercial paper market, which has contracted in the past month as banks shut their lending windows.The Fed will lend directly to non-financial companies who have been locked out of the & #36;US1.6 trillion commercial paper market, the most important short term money market for US companies.Europe fell slightly, London was higher on news UK banks will probably get capital injections from the UK Government, but the US weakened.Europe's Stoxx 600 Index fell 0.3%, a big improvement from the 7.6% fall on Monday.National indexes fell in 15 of the 18 western European markets. Germany's DAX fell 1.1%. London's FTSE 100 rose 0.4%, while France's CAC 40 gained 0.6%.London's rise came after its biggest fall ever on Monday and came on news of the Government aid to the banks.The Royal Bank of Scotland dropped 39 percent to 90 pence, while Barclays declined 9.2% to 285 pence. & #160;Media reports said the UK government may invest at least 45 billion pounds ( & #36;US79 billion) in banks including RBS and Barclays to bolster capital depleted by mortgage-related losses.In Spain the Government revealed plans for a & #36;US68 billion fund to buy assets from the country's banks. The economy has been hit heavily by a housing crash.In Russia the government will lend billions of dollars to the country's banks: & #36;US36 billion in total. That will take the aid since last month to around & #36;US190 billion. Russian markets again fell.Russia will also lend around & #36;US5.4 billion to Iceland which took over another bank overnight as the government battles to keep the country out of bankruptcy.Japan, South Korea and several other markets (and Australia) bounced when the news spread of the 1% rate cut.The MSCI Asia Pacific Index fell 1.2%, compared to earlier losses at 3.2%; Tokyo's Nikkei Index lost 3% to its lowest level since December 2003. Thailand's SET Index lost 4.2%t as protesters blocked government access to parliament in & #160;Bangkok. Hong Kong was closed for a holiday.Some of that rebound in & #160;Asia was due to unrealistic expectations that the cut was the first on a series of co-ordinated reductions by global central banks.None seem planned: apart from the scheduled Australian move yesterday, the Bank of England and the Bank of Japan meet later in the week and the Us fed has used a change in technical policy to get a small rate trim through in its move to pay interest rates on overnight cash deposits for the first time.Our market was off 3% soon after the opening, but started pulling that back in late morning trading ahead of the rate announcement at 2.30 pm. When it came with the surprise reduction, our market rose strongly and ended up well over 1% for the first gain in four days of miserable, gloomy selling.Whether the upbeat momentum can be maintained is another thing as the gloom and doom coming from Europe and the US doesn't look like going away soon.The Nikkei 225 average was trading 1.8% in afternoon trading in Tokyo after being down 5.3% in the first half an hour of trading when it fell below 10,000 for the first time since 2003.Financial stocks led Australia's rapid turnaround after the Reserve Bank of Australia lowered the overnight cash rate target to 6 per cent from 7 per cent in Sydney. & #160;The S & #38;P/ASX 200 index had fallen as much as 3.3% but rallied as much as 2.5% shortly after the rate cut was announced. By the close it was up 1.7% as banks, miners and property trusts led the market higher after the biggest rate cut since 1992.The benchmark ASX 200 ended the day up 78.3 points, or 1.7%, at 4618.7, its first gain in four days.BHP Billiton jumped & #36;1.91, or 6.4%, to & #36;31.70, while Rio Tinto added & #36;3.29, or 3.9%, to & #36;87.77. Fortsecue Metals trimmed its losses, but still ended 18 cents, or 4.1%, lower at & #36;4.23.All the major banks rose, with the Commonwealth Bank adding & #36;1.15, or 2.6%, to & #36;45.15 and NAB adding 45 cents, or 1.8%, to & #36;26.00. Westpac surged 77 cents, or 3.4%, to & #36;23.77 and ANZ lagged, gaining only 10 cents, or 0.6%, to & #36;18.15.St George Bank gained & #36;1.06%, or 3.6%, to & #36;30.36, while Suncorp-Metway, which faces being split up, bucked the trend and fell 8 cents, or 0.7%, to & #36;11.00.Investment bank Macquarie Group rose 80 cents, or 2.3%, to & #36;35.80.Newcrest Mining however lost & #36;2.19, or 8.3%, to close at & #36;24.25.The Japanese and Australia's central banks pumped more than & #36;US11 billion into their financial system to ease record-high money market rates. Our bank injected around & #36;1.8 billion with the system down & #36;1.5 billion.The Aussie dollar traded lower after the cut, hitting 71 US cents from 72. 10 before the rate decision. It recovered in late trading to be around 72.70 US cents as European dealings started. It had hit a four-year trough of 69.70 Monday night/Tuesday morning. it cosed just over 70 US cents in New York this morning.The market had been expecting the RBA to slice the interest rate to 6.5% from 7%. & #160;The central bank, however, went well beyond the predictions, cutting the official cash rate to 6%. But the market had also been tipping another 0.50% cut next month and the RBA has simply advanced that one to try and get ahead of events in the economy here and around the world. & #160;

Boom electronics retailer JB Hi-Fi Ltd had a day of wide trading swings yesterday brought about by the early market sell-down, then by a trading update which allowed it to ride the late market surge.JBH said at 10.54 am that sales in the first quarter of fiscal 2009 were on budget.That saw the shares bottom at & #36;10.23 after opening at & #36;10.55; they then edged slowly higher as the overall market steadied around noon.JBH shares moved into positive territory in the early afternoon to be up 85c, or 7.6% in the afternoon post rate cut rebound. They closed at & #36;11.95.The company said earnings for July and August were ahead of budget with margins remaining solid and cost control was & quot;good & quot;. No figures were mentioned, nor the forecasts in its August outlook statement. & quot;Both sales and earnings are well up on the previous year, & quot; JB Hi-Fi said in a trading update. & quot;All six stores opened so far this financial year are trading well. & quot;The company said it had yet to finalise its September quarter's result.JB Hi-Fi brushed off a spending slowdown to book a 61.2% lift in annual profit in fiscal 2008.In the August report the company was upbeat about the 2009 year: & quot;Sales for July and August FY09 YTD have been very strong driven by Games, Movies, Computers and Visual. Consolidated comparable store growth for the first 7 weeks of trading in FY09 was 19.2% continuing our impressive comp store growth of the previous year & quot; said (CEO Richard) Uechtritz. & quot;As this is only 7 weeks and we have the all important Christmas trading period ahead of us, we maintain our previous sales guidance in FY09 of circa & #36;2.35 billion or 28% increase on FY08. & quot;The retailer said yesterday the update followed Harvey Norman's announcement last week that profits had fallen 18.3% in the first two months of fiscal 2009 after losses in Ireland. & quot;Unaudited preliminary accounts for the period 1 July 2008 to 31 August 2008 indicate profit before tax and minority interests for the consolidated entity of & #36;47.7 million compared to & #36;58.3 million for the corresponding prior period, a reduction of 18.3% ( & #36;10.6 million), & quot; HVN directors told the ASX. & quot;That reduction includes a loss from the Irish operations of & #36;5.6 million. The company has no reason to believe that trading conditions in Ireland will improve in the near future. & quot;HVN shares rose 12c to & #36;2.93.

Shares in building and engineering services provider Norfolk Group plunged 21% yesterday after the company joined the slowing gathering pack of groups downgrading their 2009 earnings.The company told the ASX yesterday that it will not meet its earnings target this financial year as it continues to be affected by a weak construction and building market in New Zealand.Norfolk had been targeting a 10% increase in earnings before interest and tax (EBIT) from the 2008 result of & #36;34.3 million, but now says it expects a flat result in 2009. & quot;Norfolk believes it will not achieve the target of a ten per cent increase in EBIT on the 2008 financial year as previously stated, & quot; it said. & quot;With no further delays in significant projects or further worsening of current market conditions, Norfolk believes it will achieve an EBIT result for the 2009 financial year similar to that of the 2008 financial year. & quot;The shares dropped 22c or 22.2% to 77c, the day's low. The high was the & #36;1 opening quote.Norfolk said that earnings for its March 31, 2009 year will be weighted more heavily to the second half of the year than in recent financial years.Key factors working on the first half weakness included negative growth in New Zealand, delays in the award of some projects and later start dates on other projects.As well the turmoil and rising problems in global financial markets were continuing to affect the company, as the AGM had been told earlier in the year. & quot;Since that time, instability in global financial markets has intensified and the New Zealand construction and building sector has weakened further. & quot;(The NZ economy is now in a recession with the country reporting negative growth in the first half, and the country's Treasury Department Monday cutting its overall growth target for the year to just 0.1 %.)Norfolk said it had secured & #36;32 million in project wins in Sydney, Newcastle and regional Western Australia in the commercial construction, health facility construction and rail sectors.

According to Bloomberg' yesterday, New Zealand businesses grew less pessimistic about the economic outlook after the central bank slashed interest rates by the most in seven years.The NZ Reserve Bank cut rates by a surprise 0.50% last month, after a 0.25% trim in July.Bloomberg looked at the latest quarterly survey from NZ's Institute of Economic Research and reported yesterday: & quot;A net 19 percent of companies surveyed last quarter expect the economy will worsen over the next six months. That's less than a net 64 percent that forecast deterioration in the second quarter. The net figure is calculated by subtracting pessimists from optimists. & quot;And there was a patch of optimism in the report.But the detailed release & #160;from the Institute painted a far less rosy picture. & quot;Results from NZIER's Quarterly Survey of Business Opinion (QSBO) for the September 2008 quarter point to a continued recession in the second half of 2008. & quot;Real Gross Domestic Product (GDP) declined 0.2% in the June 2008 quarter, following a 0.3% decline in the March 2008 quarter, which confirmed the first technical recession in New Zealand since 1997. & quot;Indicators of domestic trading activity from the latest QSBO suggest that real GDP declined again in the September 2008 quarter, and is likely to decline further in the December quarter, which makes four consecutive quarters of negative growth starting March 2008. & quot;On a seasonally adjusted basis, a net 32% of firms reported a decline in their own activity and a net 13% expect their trading activity to fall in the next three months. & quot;The 32% figure is the highest reporting a decline since March 1991. The trading activity indicators and real GDP tend to move together over time, which suggests negative GDP growth in the second half of 2008. & #60; & quot; the Institute concluded. & quot;92% of the responses to the latest survey were received within two weeks after the Reserve Bank's announcement on 11 September that it was reducing the Official Cash Rate (OCR) by 50 basis points to 7.50%. & quot;Virtually all the responses to the survey were in the mail before the 26 September release of data showing a 0.2% decline in real GDP in the June quarter. This decline in real GDP was close to financial market participants' average expectations. & quot;Many of the responses were posted around the time of much speculation in the media about the impact on the New Zealand economy of the financial turmoil in the USA. & quot;But there was a reason to Bloomberg's stance: there was an improvement in what the Institute called the & quot;general business situation & quot; in the country. & quot;Although indicators of activity were historically low in the latest survey, indicators of confidence about the general business situation improved significantly. & quot;They remain in the negative territory, however. & quot;On a seasonally adjusted basis, a net 24% of firms expect the general business situation to deteriorate in the next six months. This figure is down from 54% that expected deterioration in the previous survey. & quot;The business confidence statistic has improved significantly across all of the four sectors (manufacturers, builders, merchants, and services) and three geographical regions we separately analyse. & quot;In terms of sectors, firms operating in the merchandise industry recorded the most sizable absolute change in the confidence measure, from -66% to -10%. & quot;The depreciation of the New Zealand dollar and fall in interest rates over the quarter are likely to have been significant factors in this change. In terms of the three geographical regions we separately analyse, the Upper North Island region recorded the most sizable improvement in the confidence measure, from -67% to -17%. & quot;The Institute's comments came a day after the NZ Government treasury sharply downgraded its 2008 growth forecasts. They also came before the NZ dollar fell sharply (like the Aussie), dropping 4% on Monday night's volatile trading before steadying somewhat yesterday.The government said its budget deficit will be almost twice as large as earlier forecast as the slumping economy cuts tax revenue from consumers and businesses.The government cut its growth forecast to just 0.1% for the year to March 31, 2009, compared to the May prediction of 1.5%.In a fiscal and economic update ahead of the November 8 election, the NZ treasury revealed there had been a sharp deterioration in the economy and its outlook prospects since the budget in May.The news will make the job tougher for Prime Minister Helen Clark in that November 8 poll. It's continuing to trail the National party in the polls.The treasury said the government's cash deficit in the year to June would rise to NZ & #36;5.9 billion compared to the NZ & #36;3.5 billion deficit forecast in May.New Zealand's GDP contracted in the first and second quarters of the year, as it eased into the first recession in more than 10 years.Adding to the pressures on growth, spending and the balance of payments is the slump in global dairy prices: down some 35% and more thanks in part to the economic slump and also the tainted milk scandal in China that has ensnared the big dairy monopoly, Fonterra.The NZ Treasury expects the economy to recover in the year to March 31, 2010 with growth forecast of 1.8%. But that is down from the May forecast for 2.3%. & #160;

The market having another shocker down 96 or 2% - but improving. It was down 149 at worst. Not the worst result considering the SFE futures suggested a 178 point drop this morning. All sectors down. Financials and Property Trusts down 1.7%. Industrials down 2.9% and Resources down 3.6% on the back of metals prices falling over in London overnight and concern that demand will be affected by a US recession. Economists predict a interest rate cut of 50bps by the RBA this afternoon - the decision is due 2:30pm. One economist says there is a chance that rates may be cut by more than 50bps because lending rates has fast become the RBA's policy priority. & #160;Dow down 369. Down 800 at worst - largest intra-session points drop in history dropping below the 10,000 mark for the first time in four years - extending Worst weekly fall since 2001. Bounced back 440 points in the last hour. Closed below 10,000 for the first time in four years. World Markets down on a lack of confidence in the impact of the US Stabilisation package and a realisation that there is no miracle recovery on the horizon as markets take a long time working through their problems. The Fed will double the Term Auction Facility to US & #36;900 billion to increase liquidity -interest on depository institution balances also to be paid by Fed. US officials called for a & quot;forceful and coordinated & quot; global reaction- Europe's response was fragmented.

Markets tumbled around the world, the euro fell sharply against the yen and the US dollar;oil dropped below & #36;US90 a barrel and the Australian dollar plunged by over 5% in a matter of hours.The Australian dollar fell to a four year low overnight and lost more than 6% in value in a day; it then rebounded more than 2 US cents in late trading and early Asian dealings to be just over 72 US cents.For most of the day the Standard & #38; Poor's 500 was off 6%- 7% or more at times; the Dow and Nasdaq were down by similar amounts.But a late rebound in the last half hour of trading cut the losses to a more 'tolerable' 3.6% for the Dow and the S & #38;P 500 and 4.3% for Nasdaq. & #160;The Dow fell short of the 10,000 point level at the close after falling to a four year low during the day when it was down well over 700 points. The index finished at 9955 points. It took over an hour to sort out the closing levels for the market, such was the confusion. & #160;Shares fell across the board with those of industrial and financial giant, & #160;GE down to an 11 year low.It was a day that saw near panic selling at times in Europe and the US. Distressed selling by liquidating hedge funds was observed. Some hedge funds reported losses of 40%-60% for September alone!Europe's Dow Jones Stoxx 600 Index had its steepest decline since 1987, down 7.6%. All 18 European markets covered fell in a day of dramatic trading where losses ranged as high as 19% in Russia.The London market was off more than 7.8%, the biggest drop in 21 years while Paris' CAC Index fell 9%, the largest ever. Germany's Dax was off more than 8%, thanks to the fears generated by the struggle to keep Hypo Real Estate alive. & #160;Futures trading had our market off 233 points at the opening this morning, or more than 5%, but that recovered to a 4% loss or 178 points on Wall Street's late bounce.Oil finished under & #36;US88 a barrel, at & #36;US87.81 in & #160;New York. Copper fell almost 9% to & #36;US2.45 a pound (which is bad news for the likes of BHP Billiton), grains tumbled by 5% or more. Only gold rose, up & #36;US25 an ounce in early Asian trading to & #36;US859 an ounce.The Fed moved to boost liquidity in markets, especially in the US. It's looking to improve liquidity in the important commercial paper market. It will add up to & #36;US900 billion in loans.Emerging markets fell the most ever and exchanges in Brazil and Russia were forced to halt trading as the global banking crisis escalated in Europe.Iceland suspended trading in banks and financial stocks and guaranteed bank deposits, joining Denmark, Ireland, & #160;Germany, Italy and Greece in doing so.Brazil's Bovespa index tumbled 13%, while Russia's Micex Index plunged 19% after trading was halted three times. China's benchmark CSI 300 Index slid 5.1%. Indonesia and Saudi Arabia lost the most in at least six years. & #160;Trading was halted in & #160;brazil to let the market stabilise.The MSCI Emerging Markets Index slumped 11%, the biggest loss since 1987. It's down 47% so far & #160;Australian shares hit a three year low yesterday in another day of miserable trading and in Tokyo, Japanese shares hit a four year low point.Tokyo, had its lowest close since July, 2005.The US rose to a 13 month high against the euro, thanks to the worsening financial situation in Europe where authorities are struggling to contain a crisis. Germany and Denmark joined Ireland, Greece and Italy in guaranteeing bank deposits, especially from individuals.In early afternoon trade, the ASX200 index was down as much as 178.6 points, or 3.8%, to 4516.8. The slide took the index below the 4,600-point level touched during last month's market panic after the failure of US investment bank, Lehman Brothers.At the close the index was down for the seventh of the past eight days, losing 155 points, or 3.3%, to 4540.4; the lowest close since November 9, 2005.Japanese share prices slid 3.6% in morning trade hitting that four-year low on worries about the financial crisis. They ended down 4.5%.All markets open for trading in Asia declined, with benchmark stock indexes in South Korea, Taiwan and Australia falling more than 3%. China was off 5.1%. The Hong Kong market hit a two year low yesterday.Driving the gloom was the worsening of the financial crisis in Europe with the bailout of Hypo Real Estate in Germany rising to 50 billion euros, all of which will come from the Government and the banking industry.Hypo's part in raising 15 billion euros in asset sales was not mentioned in the new package which was forced on the government after Hypo's financial position worsened and the first 365 billion euro deal collapsed.Fortis's first rescue fell over and then being done separately in two big deals with the Dutch Government buying one bit for 16 billion euros and the BNP Paribas of France buying 75% of the rest for 11 billion or so euros.In Italy UniCredit, Italy's second biggest bank held a Sunday board meeting and agreed to raise more than 6.6 billion in euros of fresh capital with over half that coming from abandoning cash dividends to shareholders and paying them in shares, as UBS of Switzerland is doing.The Aussie dollar fell one US cent yesterday morning in local trading as financial markets worried about the events in Europe and the prospect of a bigger than usual 0.50% interest rate cut today from the Reserve Bank.That took the loss on the currency since its high of 98.49 in mid-July to 23%.It then fell further in late Asian and European trading as the fears grew about the health of European banks.The Australian dollar's slump accelerated during the day. It finished at just over 78 US cents in Sydney on Friday of last week; it hit a low of 69.70 US cents. It fell around 6% yesterday alone before the late recovery, of sorts.It has lost 14% of its value over the past week alone as the US dollar has soared on demand from nervous investors looking for a safe home. That has kicked commodity prices lower, led by oil, gold and copper, which in turn has fed through into downward pressure on local share prices and of course the Aussie dollar.BHP Billiton fell 63 cents, or 2.1%, to & #36;29.79 - the lowest close in 17 months. Its takeover target, Rio Tinto slumped & #36;4.43, or 5%, to & #36;84.48. The bid (3.4 BHP shares for every Rio share) was worth & #36;101.28, 16.5% under the bid value.BHP shares were lower in London last night, as were Rio and all other commodity groups.Fortescue Metals lost 56 cents, or 11%, to & #36;4.41. The shares have shed nearly two-thirds of their value in the past three-and-a-half months.Westfield slumped nearly 6% or more than & #36;1 to & #36;17 on news of rising vacancies in US shopping centres.According to a report from the US, vacancies at US neighborhood and community shopping centres reached a 14-year high in the third quarter, rising to 8.4%, while at regional and supermalls, the vacancy rate rose to 6.6% last quarter from 6.3% in the second quarter, the highest since the fourth quarter of 2001, when it was 6.8%. Vacancies were up from 5.5% a year earlier.Among the banks, the ANZ fell 63 cents, or 3.5%, to & #36;18.05, the Commonwealth, & #36;1.01, or 2.2%, to & #36;44.00, the NAB, 60 cents, or 2.3%, to & #36;25.55 and Westpac 71 cents, or 3.1%, to & #36;22.50.Investment bank, Macquarie Group lost & #36;4.10 or 10%, to & #36;35.00. & #160;

Nowhere to run, nowhere hide, or so it seems in recent weeks.Last week was no exception, and the havoc continued across the globe yesterday & #160;and continued into the trading in northern hemisphere markets.In the US, with investor spirit crushed by the events of the past month, it's time for the US third quarter earnings reports to start flowing, with Alcoa tonight the first, then Chevron midweek and then the big one, General Electric on Friday night, our time.Here we have just one earnings report from the regional lender, the Bank of Queensland, which will be scanned closely for any hint of problems with its Queensland business and property portfolios (mostly residential).But America will be the big focus.US quarterly earnings reports are usually major drivers of investing momentum and up to six weeks ago, many analysts were forecasting higher earnings as the US economy started recovering.If anything there could be up to a year of grim reports on earnings as the recession intensifies in the US, thanks to the impact of the credit freeze.As Reuters Estimates pointed out a week ago, declining earnings forecasts for financials and commodity stocks like oil has produced a reversal of earlier expectations of earnings growth this quarter to where a fall is now forecast.Last week's car sales figures for September are pointing to greater pressures than expected across manufacturing: US car sales were down 27% in September, on September last year and for the first time in around 16 years, less than 1 million cars were sold in the US in a month.Several major car dealers have suffered: the listed AutoNation and Carmax are cutting back and the earnings reports from others supply and servicing the sector are going to be grimRetailing will be one depressed sector especially with upwards of 270,000 jobs disappearing in the quarter, including 159,000 in September alone.The only reason the US unemployment rate remained steady at 6.1% was the disappearance of hundreds of thousands of people of the ranks of those looking for work.All three major indexes - the Dow, Nasdaq and benchmark S & #38;P 500 - remain down some 20% over the year and the economic picture continues to look grim.For the week till last Friday, the Dow ended down 7.3%, the S & #38;P 9.4% and Nasdaq tumbled 10.8%, even though some analysts say the tech demand from business is still relatively firm.Chevron will tell us the dramatic impact the 20%-30% drop in oil prices in the quarter had on earnings, as well as the impact of the dislocations from two tough storms in September in the Gulf of Mexico, with the oil facilities in Texas hit especially hard and product shortages continuing throughout the south.And GE will confirm the second earnings downgrade of 2008, given a fortnight ago. It's cutting a share buyback, raised & #36;US12.2 billion last week, including & #36;US3 billion from the supremely opportunistic Warren Buffett.GE frightened the market back in early April with an earnings slump and downgrade in its first quarter figures.Now it's trading on probation with many investors worried about the impact its sagging financial side is having on the industrial businesses which are feeling the pinch from the gathering economic slump.The Australian market is off 33% and because of our strong commodity base (and high foreign debt) we are being lumped in as an almost emerging market, except our market structure, governance and legal system make us an obvious developed economy state.Our market fell 4.7% in the week to Friday, a big improvement on what other markets did.Europe was bad and will get worse thanks to the continuing eruption of financial volcanoes that just won't die.Emerging markets (Brazil, Russia, India, China, etc) had an absolutely miserable week, suffering their biggest fall in seven years. & #160;last night was even worse, with the largest fall on record.Banks and commodity (especially energy) companies saw their prices slump as commodities suffered the worst week in 50 years: major indexes fell 10% over the five days and not even gold was exempt with some big falls Thursday and Friday that knocked the stuffing out of the bulls.Gold prices tumbled more than 6% last week (but rebounded & #36;US36 overnight), oil 12% and the US dollar rose 4.3% as it proved to be the major beneficiary of the credit freeze and turmoil.The MSCI Asia Pacific Index fell 8% last week to be down 33% so far this year. Toyota fell around 14%, BHP Billion 15% and major banks across the region were easier.Yesterday wasn't any different, only more of the same gloom.

Well, a deal might not happen, but it's one way to stop the rot in the share price.Suncorp Metway's confirmation of endless market rumours of approaches over its banking business saw the shares rise back above & #36;11 on a day when misery struck the overall market yet again and the index closed down around 3% in thin holiday trading.Suncorp told the ASX early on that it had been approached by companies wanting to buy its banking and wealth management units.It said the approaches were & quot;preliminary'' and may not lead to formal proposals, but it was enough to run the price up to a high of & #36;11.65 from Friday's close of & #36;10.78. The shares jumped 11% over Thursday and Friday on those now accurate reports. They closed yesterday up 3.7% or 40c at & #36;11.08.Suncorp said it had appointed Lazard Carnegie Wylie and UBS AG as advisers.Suncorp shares have slumped 37% to their lowest point since 1998, thanks to worsening results from its insurance business and concerns about the global credit crunch and fears it might have to sell assets.In August, the company posted a net profit for 2008 that had halved from the previous year and more as the company reworked its insurance reserves and other assets to boost returns.Earnings from its wealth management also fell sharply, while it said that profits from the banking business at Metway had been solid.Then last week it surprised with news of a further shuffle inside its insurance arm (Promina, GIO and Suncorp are the major brands). & quot;Suncorp has completed the disposal of the Australian and overseas equity assets contained within its General Insurance Shareholder Fund portfolios. & quot;Suncorp previously announced its intention to derisk these portfolios prior to the end of September 2008 in response to recent regulatory changes requiring additional capital to be held against equity investments. & quot;The portfolios were valued at approximately & #36;1.2 billion on 30 June 2008. & quot;The sell down was completed prior to this week's equity market volatility at an average ASX 200 index level of around 4945. & quot;The proceeds of the equity disposal are primarily invested in cash. & quot;Media reports said Suncorp is thought to have lost around & #36;A60 million on this deal, although the move was expected to add around & #36;A50 million to its capital positionThe ANZ has been mentioned as a possible suitor, but it will be battling to deal with market worries about the adequacy of its write-downs and provisions for the year to September which will total around & #36;2 billion.The speculation about Suncorp come as Westpac is poised to take over St George Bank, and reports that Commonwealth Bank has been rebuffed in approaches to HBOS Australia for its BankWest operation. Westpac had been mentioned as a possible suitor for Suncorp.In August Suncorp revealed that earnings had fallen more than 50% to & #36;556 million. & quot;Bank profit before tax increased by 11.2% to & #36;633 million. The result was at the top end of guidance and featured margin stabilisation in the second half, as well as maintenance of disciplined credit practices, & quot; Directors said about Metway's performance. & quot;General insurance profit before tax of & #36;307 million, significantly down on last year's figure of & #36;835 million after severe weather events and volatile investment markets impacted the bottom line. All insurance brands continued to perform well, achieving good premium growth across short tail products. & quot;Underlying profit of & #36;136 million for the wealth management business, down 9.3% on the 06/07 pro-forma result. & quot;So it is being approached for one apparently solid performer in the banking business and one not so hot operator in its wealth management division.In a statement yesterday afternoon, ratings group, Standard & #38; Poor's said it had put Suncorp on Creditwatch as a result of yesterday's announcement.The moves included ratings on Suncorp-Metway Ltd. (Suncorp) and Suncorp's core operating companies and also applies to Suncorp's insurance operations.S & #38;P says the move & quot;reflects uncertainty about Suncorp's future corporate structure following the potential divestment of its banking and wealth management operations. CreditWatch Developing indicates that the ratings assigned could be upgraded, downgraded, or affirmed, depending on the outcome of the divestment negotiations. & quot;Suncorp announced earlier today that it had received several approaches by entities interested in acquiring its banking and wealth management operations. On a normalized basis, the banking and wealth management operations contribute more than 40% of Suncorp's group earnings. & quot;The bank holds a good market position in Queensland, and has sound asset quality and earnings profiles; however, Suncorp has a shorter term funding profile than many of its peers. Should Suncorp divest its banking and wealth management operations to an entity rated above 'A+', the final credit profile on these businesses is likely to improve. & quot;Conversely, acquisition of these assets by an entity rated below Suncorp's 'A+' rating would likely result in a weaker credit profile for these operations. In a divestment scenario, the rating on the group's remaining activities, namely its substantial general and life insurance operations, would be determined by the resulting corporate structure (whether independently listed or acquired), and the business and financial profiles. & quot;With the closure of offshore credit markets, funding for Australian banks has become more challenging in the past few weeks, & quot; Standard & #38; Poor's credit analyst Mark Legge said. & quot;This scenario, in particular, adversely affects those banks with shorter term liability profiles and those more exposed to offshore funding markets. & quot;Nevertheless, any refinancing pressure is expected to be short term, and we are comforted by the strongly supportive Australian banking regulatory system, including the ability of banks to access the Reserve Bank of Australia's window for securities eligible for repurchase. & quot; & #160;

Our Labour Force figures are out Thursday and its likely there will be an end to the growth in the labour market.It won't be of much import as the Reserve Bank will cut rates today, almost certainly by half a per cent.The overnight selling wave on global markets made that certain, although the very sharp fall in the value of the Australian dollar (down around 8 US cents in a day and a bit) might generate some second thoughts. & #160;It will be a cut that the Bank of England will match late Thursday night our time as the UK economy slowly collapses in on itself.That won't be of importance here; our rates will have been cut by then.The deepening of the financial crisis in Europe over the weekend means the pressure is on the RBA to cut more deeply than it intended 10 days ago.The Australian dollar's fall was partly on growing expectations of an 0.50% rate cut. & #160;But that's also a bit of headless chicken trading which doesn't even begin to look sensible. & #160;We are an economy in reasonable shape paying 6.5%; Europe is on 4.25% and stumbling, the US on 2% and slumping or Japan slumping and 0.5%.Investors are selling anything remotely leveraged, and Australia is that with high rates and high levels of foreign debt.But the irony is that the are putting their money into the most leveraged currency of all among the majors, the US dollar.The NAB forecast Friday that it now expects rates to fall by 0.50% today, joining an early predictor in Macquarie Group's Rory Robertson.The NAB urged the central bank to be & quot;more aggressive & quot; in rate cutting.At least the RBA has room to cut and cut deeply: the Fed in the US is almost out of room, the BGank of Japan has no room, while the ECB and the Bank of England has some leeway for some aggressive cutting, but nowhere near as much as we here in Australia (and in New Zealand where rates are already off 0.75%).The longer the financial and credit freeze goes on, the greater the pressure on domestic economies everywhere.Australia is exposed in that respect: we borrow heavily from offshore, especially the banks.So does the US where those employment and other figures on the labor market last month were absolutely terrible.Even if our unemployment rate starts rising and jobs are lost, it will take a while to reach the miserable levels the US figures are now at. And they are going to get worse as the economy slides deeper into a slowdown.The 159,000 job loss was bad enough, but 760,000 people in the US have officially lost employment since January, with hundreds of thousands more leaving the active work force.But millions of other workers are having their hours cut, their pay trimmed, being forced to work longer for less, or being forced to move into part time employment.The unemployment rate of 6.1% may have been unchanged in September, with the number of unemployed persons little changed at 9.5 million.But over the past 12 months, the number of unemployed persons has increased by 2.2 million and the unemployment rate has risen by 1.4 percentage points, according to US Government figures.The 159,000 jobs lost in September were the most since March 2003, when the labour market was recovering after the 2001 recession.US analysts say that government hiring has been strong throughout the downturn, as the private sector has now lost nearly a million jobs since December, when the cuts first became noticeable.But in a portent of what's to come as budgets worsen, state and local governments cut 18,000 jobs in the month, outside of education. & #160;A number of US states are close to being broke and California is talking about asking the Federal Government for an emergency & #36;US7 billion loan. Several other states are reported to be thinking along those lines, so sudden and so dramatic has been the shutdown in lending markets.The real weakness and big signal for the future was the drop in the average hourly work week by 0.1 hour to 33.6 hours. The average hourly pay rose just 3 USc, but when combined with the shorter week, means that the average weekly paycheck actually fell by 81c to & #36;US610.51.That's the bad news, the really miserable news for the US economy; at a time when consumer spending is being pressured, US consumers have less to spend on every day essentials, let alone presents and other gifts as the important holiday season approaches. That will put more pressure on employment as companies face declining sales and profitsFor that reason, American economists now say the outlook is for job losses equal to or greater than last months over the next two quarters.The combination of the shrinking payrolls and the shorter work week means that the total hours worked by all private sector employees fell for the sixth straight month.Unemployment claims hit a 7-year high last week, but the labor force figures reveal that the number of people who settled for part-time work or had given up on finding a job altogether is the worst for 14 years.American economists refer to it as the & quot;under-employment rate & quot; which includes those without jobs who have become discouraged and stopped looking for work, as well as part-time workers who want full-time jobs. It rose to 11% from 10.7%, the highest rate since April 1994.And the number of people working part-time jobs because they couldn't find full-time work or because their hours had been reduced jumped by 337,000 people to 6.1 million, the first time there have been more than 6 million part-time workers wanting full-time jobs since 1993. & #160;But apart from the dislocation caused by September 11, 2001, there hasn't been a rise in September like this since 1983. & #160;

The world economy continues to slide closer to the edge of recession with manufacturing around the world taking a major hit last month from the credit crunch and the credit freeze.The world's major economies seem to be slowing much faster than thought and towards contraction, not just below-trend levels of activity.The series of glum reports had an immediate impact on stock markets overnight: many were down 2% or more, oil prices fell by more than & #36;US4 a barrel to under & #36;US94, copper lost 6% to & #36;US2.60 a pound in New York, 19 month low.Platinum and palladium tumbled with platinum falling under & #36;US1,000 an ounce for the first time since late 2006 as car sales slumped around the world. Gold shed & #36;US42 an ounce, or more than 4% to & #36;US843. Silver lost 12% to just over & #36;US11 an ounce.That left the Australian dollar down more than 1 & #160;US cent at close to 77 US cents.Stockmarkets around the world faded overnight, not because of the continuing worries about the bank bailout plan, but because of the sudden and sharp decline in manufacturing around the world.Wall Street was off 3%-4%.In fact some economists reckon that there was an outright slowdown in September thanks to the impact of the latest eruption in the credit crunch and the lending freeze that developed as Fannie Mae/Freddie Mac were bailout out and then a succession of crisis starting with Lehman Brothers failure in the middle of the month.It's reminder that will fall on deaf ears and closed minds in Washington and other countries where people oppose the & #36;US700 billion bailout and want to push Wall Street and banks and financiers generally.The size and spread of the global slump makes it clear that economies are already adjusting to the possibility of a collapse in finance and a freeze in lending: the jobless queues will surge from now on, Europe's is rising and America's will rise sharply tonight.Manufacturing surveys in Japan, Europe and in the US made for unhappy reading: China showed a small gain; in Australia our manufacturing sector drifted in negative territory in September with no real improvement apparent.US car sales slumped sharply in the month and shares of leading manufacturers were weak.In fact there was a clue in the car industry at what happened in the US, and perhaps elsewhere. Sales and visitor traffic to dealer showrooms stopped after the weekend when Lehman brothers failed, Merrill Lynch was taken over by Bank of America and AIG was nationalised.Banks started withdrawing credit lines, shutting down lending and leaving their cash with central banks.So it's no wonder that America's PMI reading was 43.5 in September, down from August's of 49.9.That was the lowest reading since the 40.8 measure in October 2001, the month following the terrorist attacks on New York and Washington.Economists had been forecasting a reading of 49.5, so they were surprised at the size of the fall.(50 points is break even in these surveys with readings above that indicating optimism and expansion and below indicating pessimism and contraction in activity). & #160;The index has averaged a reading of 49.6% for the past year, so the September outcome is a significant lurch downwards in pessimism and activity among manufacturers, who have been keeping the US economy alive with strong gains in exports.In Japan sentiment among large manufacturers in the Bank of Japan's quarterly Tankan survey went negative for the first time since June 2003, continuing a trend of falling confidence that has seen the economy contract in the second quarter of 2008 and exports and industrial production fall sharply. & #160;Exports to the US fell 22% in August as car companies slashed local production and exports. Unemployment in Japan hit a four year high of 4.2% in August and the economy seems to be worsening faster than forecast.In the eurozone, the purchasing managers' index for September was confirmed at a reading of 45, down sharply from the 'boom like' 53.2 outcome a year ago. Economists say that in this survey a figure above 50 indicates a majority of the survey's respondents are reporting rising output while anything under 50 suggest contraction.In Britain, a survey like the PMI slumped from 45.3 in August to 41 last month, the weakest on record. The housing and retail slumps in Britain are hurting manufacturing, which is now being further whacked by slowing activity levels in Europe and the US, its two major markets. & #160;Not even a 12%-plus fall in the value of the pound has helped, unlike the US where the weaker greenback stimulated a surge in exports that is now starting to fade.US economists reckon that the last time the country's manufacturing sector felt this sick was back in early 2001 when then Fed chairman, Alan Greenspan cut interest rates outside a regular Fed meeting by 0.50% and kept cutting, helping to ay the groundwork for the credit boom and bust!The last time the US experienced such a sudden drop in its index was in January 2001, and helped prompt the Federal Reserve under Alan Greenspan, its then chairman, to cut rates by half a percentage point outside a scheduled meeting.China's PMI index rose to a reading of 51.2 from 48.4 in both August and July. They were lowered by the slowdown engineered to accommodate the two Olympics in Beijing. But it was still sharply lower than the April level of 59.2.Australia's PMI in September was relatively stable in September, up by 0.2 points to 47.2 and but still under the 50 level separating expansion from contraction.The Australian Industry Group said that manufacturing activity fell for a fourth successive month in September, thanks to higher official and commercial interest rates squeezing consumer and housing-related demand; slower trading partner growth, especially in Asia. Production fell again in September, though at a slightly slower rate than in August, in line with continued declines in new orders.The credit crunch and continuing high petrol prices, plus rising unemployment and tightening credit standards have conspired to force US car sales sharply lower last month.According to figures compiled by the consultancy AutoData sales of new cars and light trucks dropped 27% in the US last month from August of 2007.It's a sign of what lies ahead of us if the credit freeze continues and deepens.From other figures, September looked like the worst month for car makers since January 1991 and it is possible that less than a million cars were sold in the country for the first time in years.Sales from the major car makers fell sharply in September, as tighter credit for buyers added to pressures already forcing buyers to stay away from showrooms.Figures from some analysts reckon that dealer traffic fell 50% after the middle of the month as the financial crisis erupted anew and its not surprising that General Motors' largest Chevrolet dealer in the US went into bankruptcy protection on Monday as a result.Carmax, a big listed car dealer is sacking 600 people or 4% of the workforce after second quarter earnings fell 78%. It won't be the last of similar moves.The sales declines were broad based, with Japanese automakers reporting the same kind of double-digit declines that have whacked Ford, GM and Chrysler.Many prospective buyers have been unable to get the credit they needed to buy a car and a growing number of dealers have had their own credit cut off or curtailed, causing widespread failures.From comments by car company executives, they don't think they've seen the bottom yet.Sales of cars and light trucks fell 35% from August 2007 at Ford, 32% at Toyota and 24% at Honda. GM's were down 16% (which was taken as good news) Nissan reported a 37% drop, Chrysler a 33%, fall and Hyundai, 25%.Kia's sales fell 28%, Ford associate; Mazda saw its sales slump a massive 36% on August 2007.Among smaller brands, Fuji's Subaru had a good month; sales were down just 12% but for Mitsubishi misery with a 39% drop and even worse for Suzuki with a 47% plunge.Chrysler, which includes the Chrysler, Dodge and Jeep brands, saw sales of its light trucks drop 34% and car sales lost 29%.Toyota's September drop was the sharpest percentage drop in US sales for the Japanese giant in 21 years. It cut output in Japan by more than 17% last month as well, while Honda and Nissan also cut production in their home markets.It was Honda's worst monthly sales performance since 1981, and a sign that the good fuel economy it boasts of for its models, is no longer enough to buck broad industry declines.In Britain Ford, Jaguar Land Rover, Toyota, Honda and Bentley are cutting production or going to a four day week, but not, as yet laying people off.Like Toyota and Honda, Ford says its also cutting back across Europe as sales slow. & #160;

The market is struggling today - we are down 76 - Down 128points at worst, down 43 at best on the back of heavy falls on Wall Street. We are expecting a decision on the Stabilisation Bill tonight in the US. Resources underperforming. You know resources are in for a rough day when the two big boys - BHP and RIO - fall over 10% in the ADR form overnight - both down 4.1% and 4.6% this morning. Resources down 4.0% across the board. Healthcare sector they only one putting some gains on. Financials down 1.1% and Property Trusts down 1.0%.

A small, but significant bit of good news yesterday amid all the doom and fear.The resources boom is still paying off for the country as a whole, judging by the latest trade figures for August.The best trade surplus in 11 years is just the sort of news to give a bit of encouragement, even to the Reserve Bank as it approaches next Tuesday's board meeting and probable rate cut.A quarter or half a per cent is the best guess: no cut at all is being discounted by the market.It could very well hinge on any vote in the House of Representatives this weekend. A no vote would be bad and a rate cut as large as possible would probably come quickly and around the world, with more liquidity being injected by central banks to absorb the shock.But let's hope it doesn't get to that. The nice black ink in our trade account is something we should have time to enjoy.With the Aussie dollar down last month and a 6.1% rise in the Australian dollar value of the Reserve Bank's Commodity Price Index last month (after a revised upwards 8% rise in August), there's every chance the surge in national income and our terms of trade will keep trickling in.But the slowdown globally means it will stop sooner, rather than later.A 6% rise in exports (thanks to those higher prices for iron ore and coal) and a drop in imports (thanks to lower oil prices) saw Australia post a & #36;1.36 billion surplus.According to the Australian Bureau of Statistics, it was the second surplus in the past three months after revisions.The seasonally-adjusted trade balance compared to the revised & #36;697 million deficit in July and was far better than the & #36;200 million surplus forecast by most in the market.It was a turnaround of & #36;2,061m on a revised deficit in July 2008.It was the first surplus since April 2002 and the second largest since records started back in 1971, topped only by the June 1997 surplus when the Asian crisis was on.The jump in exports partly reflected a 26% increase in coal exports, while the 25% plunge in oil prices saw imports down 2% in the month, assistance by a sharp 23% fall in electrical imports. & quot;The seasonally adjusted surplus was primarily due to the strong rise in non rural and other goods credits and the fall in fuels and lubricants debits, & quot; said the ABS.Exports hit a record & #36;24.6 billion in the month, up nearly & #36;1.5 billion while imports tumbled by almost & #36;600 million to & #36;23.2 billion because of the fall in oil prices.Two months ago a surplus this size would have worried the RBA into holding off on a rate cut and even thinking of a future rise, but the global credit freeze and slowing industrial production and sentiment here, in the US, Japan, Europe and Britain, calls for a different response.Reluctant banks and high interest rates here in the markets will start having an impact on activity, so the strong injection of higher export receipts is now welcome news.Inflation is no longer a priority for any central bank: in fact there might be one or two thoughtful bankers wondering about deflation should this continue for the next quarter, even if the bail out package is passed.This week's retail trade figures for August were trend only and showed a small rise, but because they are no longer as accurate as before July, they should be not taken as gospel until the more accurate quarterly figures come next month for the September three months.The building approvals this week worsened and there's no doubt demand for credit and the availability of housing credit are falling.So with the current volatility, there's reason enough for the RBA to cut by 0.25% and some justification for a 0.50% cut.Some commentators say there's a good chance that will happen, others aren't so certain.Economists at Goldman Sachs JBWere are in the latter camp.Here's what they wrote yesterday.After recent financial market developments, the market is pricing a 50bp rate cut in October as all but a certainty (90% probability). We discuss our decision to maintain our forecast for a 25bp cut and outline what could cause us to change our view.Despite market pricing we currently put the probability of a 50bp rate cut at 40%. We acknowledge that:Even after a 50bp cut, financial conditions would still be restrictive - The outlook for global growth and commodity prices has weakenedAustralian banks may choose to withhold the full impact of an RBA rate cut onto mortgage rates, reducing its effectivenessProvided money market spreads continue to recede, we do not believe a decision by the banks to withhold an RBA rate cut can be fully justified.We highlight that the interest rate mismatch in banks portfolios means that banks are better able to absorb elevated money market spreads during an easing cycle than during a tightening cycle.The bigger consideration for the RBA is the risks to economic growth if term funding markets remain closed to banks for a considerable period of time (a definite possibility if US authorities fail to pass the TARP bill). The economic cost of this outcome would be enough to justify a large and rapid easing.We note that this probably does not reach a critical point until after the November rate meeting, allowing a longer time frame for the RBA to assess the credit environment.Our central view remains that the RBA will cut rates by only 25bp next Tuesday. This view is predicated on:An easing in levels of distress in Australian money markets which will alleviate the pressure on domestic banks to withhold the full impact of any RBA rate cut.That an amended version of the Troubled Asset Rescue Plan (TARP) bill will shortly pass through both Congress and the Senate.Should market action deteriorate again upon a second failure of the TARP legislation, and/or it becomes apparent that banks will not pass on a full rate cut, this would move us closer to the threshold to change our forecast to a 50bp move.Assuming a 25bp rate cut this month, we continue to expect another 25bp rate cut in December and a further 75bp of easing in 2009.But Rory Robertson of Macquarie Bank takes a different stance.He reckons the RBA will cut deeply on Tuesday. & quot;Against that background of a further sharp deterioration in global economic circumstances, the RBA looks set on Tuesday to cut its cash rate by 50bp to 6.5%. & quot;And, as observed here previously, if the global credit crunch continues to intensify, and domestic growth continues to downshift as commodity prices continue to fall, the RBA's six-plus-years worth of monetary tightening - lifting the cash rate from 4.25% to 7.25% between May 2002 to March 2008 - may end up being unwound in just a year or two & quot;. & #160;