European shares opened down this morning but they resisted the fierce sell off seen in Asia over night, having already been battered by US recession fears yesterday.
By 10.36, the Eurofirst 80 - the top 80 stocks across Europe - was actually up 11.99 at 4799.79 and the FTSE 100 index in London had rebounded to trade up 4.8 points at 5872.8 having been as much as 40 points in earlier on. Mining stocks lead the fallers on fears that a US recession would dent demand for metals. BHP Billiton was the top faller after raised its bid for Rio Tinto, sparking fears it would over pay. BHP lost 6 per cent to £15.02 while Rio fell 1 per cent to £53.89, keeping a small discount to BHP’s all share offer.
Xstrata bucked the trend, up 2 per cent at £38.70 on talk of an imminent £45 a share bid from Vale of Brazil.
ITV was up 3 per cent at 76.7p on revived talk of a bid from private equity, which was first reported in the weekend press. Apax has ruled itself out but there is speculation Provident and KKR could still be interested. BSkyB was the top riser, up 4.5 per cent at 563p after better than expected interim results.
The futures market is predicting the Dow Jones will open up 57 at 12,322, the S&P 500 up 6.6 at 1,343.2 and Nasdaq100 up 5.6 at 1,779. However, there was a grim profit warning this morning from America’s largest luxury home builder Toll Brothers which may spread more gloom.
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Across Asia, stocks suffered a spectacular collapse, echoing Wall Street’s worst fall for a year during the previous day’s session. A particularly brutal savaging was administered in Tokyo, where the Nikkei 225 Index took a 4.7 per cent dive in a sell-off described by brokers as “indiscriminate”.
Some market watchers are forecasting a worst-case scenario in which Chinese shares shed as much as 12 per cent when trading resumes next week.
Hong Kong, which will now be closed for the remainder of the week, lurched 5.4 per cent lower in a session that only lasted for half the day.
Overnight news of BHP Billiton’s raised offer for Rio Tinto also produced fierce sell-offs.
The 12 per cent stake in Rio bought jointly by the Aluminium Corp of China (Chinalco) and Alcoa is seen as a major potential source of trouble for BHP, whose shares tumbled 7 per cent in a volatile session in Sydney. The Hong-Kong listed shares of Chinalco took a 7.2 per cent dive as the prospect of a complex bidding battle hove into sight.
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Tokyo traders were particularly focused on the share price performance of Nippon Steel – seen by market veterans as the ultimate bellwether of Japan Inc. Its shares have so far held above what is viewed as a critical level of ¥600: if that level is breached, say market strategists, many other blue chips could find any remaining support vanish overnight.
The apparent dent in the US services sector – unveiled on Tuesday by the Institute for Supply Management – sparked fears that Japan’s mainly export-driven economy would quickly feel the effect of a US slowdown.
One Mizuho Securities broker said: “There is a perception that Japan has no cushioning between its companies and the US economy. As long as that remains in place, Japanese stocks are going to be thrown around by every morsel of news coming from the US.”
But one senior broker at Mitsubishi UFJ Securities said that the Japanese market was now equally in thrall to movements on Hong Kong and Shanghai.
“Trading in Tokyo is increasingly taking its direction from China and the week-long new year holiday is going to create a potentially very nasty Asian vacuum. As things build up over the next week, we could be in for a real horror show when the Hang Seng opens up next week.”
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As well as the now pervasive horror of a US slowdown, much of the downward pressure in Hong Kong also arose from the closure of any slightly risky trading positions ahead of the long holiday break. Similar sentiment also drove the Singapore Straits Times Index 3.5 per cent lower.