Markets and consumer confidence feeling the pinch of the sub prime crisis

08 November 2007
The effects of the sub prime crisis continue to be seen in the global economy, property market, and employment levels and some of the consequences are even breaking records, such as causing the dollar to fall to a new low against the euro yesterday.

The US economy still weighs heavily on the US currency, which fell to $1.4571 against the euro, falling even further than last week’s record low of $1.4528. A 26 year low was also recorded as the dollar fell to $2.0906 against the pound. Concerns about the credit crisis are keeping risky investors at bay and it is thought that the dollar remains susceptible to further declines before the storm is over.

Consequentially, investors are looking to items of more tangible worth in which to risk their money, such as gold, commodities and the currencies of their producers, causing such items to become increasingly desirable. Gold has climbed to a 28 year high of $825 an ounce, and oil prices are breaking records as they soar above $97 a barrel.

Japan’s index – which tracks a range of market elements such as industrial inventories and consumer confidence – is experiencing even less fortune and is not weathering the storm well. September saw it hit zero, bottoming out for the first time since 1997, and a general decline in economic conditions has been reported since the summer when the credit crisis broke.

Japan’s economy is suffering from a decline in new home-building, which is something also effecting the UK economy, where a steep drop in confidence is believed to have knocked new-build figures. Britain’s top seven house-builders has fallen £8.7 billion in value.

According to Britain’s biggest home-building company, Bovis, “Recent events in the financial markets have adversely affected consumer confidence, resulting in sales being lower than anticipated during the key autumn selling period.” Profits are predicted to be at least seven per cent below expectations.

Employment is also suffering at the hands of the credit crisis, with the construction and financial sectors expected to be the hardest hit. Alan Nolan, Director at recruitment consultants KPMG said: “The credit crunch begins to casts its shadow over the job market with the lowest growth in permanent placements for thirteen months and the slowest pace for demand in permanent staff for seventeen months.”

In light of the Northern Rock crisis, it has been found that fewer than a third of European consumers are confident that their banks have their best interests at heart. Just 22 per cent of Britons believe their bank puts what is best for them ahead of what is best for profits.

Find out more about investment

© Fair Investment Company Ltd