News.com.au reported that the UN’s World Economic Situation and Prospects 2008 report said that “major uncertainty” surrounded the coming year stemming from an apparent economic slow down in the United States on the back of the sub-prime crisis, the sliding US dollar and a gloomy outlook for the labour market.
“A further slowdown in the world’s major economy will hit many of the poor nations hard, as it will slow world trade and put an end to the boom in commodity prices that benefited them over the past years,” the report said.
“The domino effect of a US recession would be to knock down export growth from China, Europe and Japan, in turn reducing their demand for exports from developing countries.”
The report forecast that world economic growth would be 3.4% this year, down from last year’s 3.7%. In 2006 the world economy grew 3.9%.
The UN also believed that the recent pact central banks in major economies made to alleviate financial stress did not address the root of the problem between financial surplus nations like China and deficit countries such as the US.
Instead, the newswire reported the UN saying a realignment of exchange rate was one way of addressing global imbalances, or “economic stimulus” through stronger demand in countries with large savings and current account surpluses such as China, Japan and oil-exporting nations.
While it’s hardly likely the UN report beared any weight for resource stocks in today’s session, the bearish sentiment persisted with local investors worried about a possible US recession.
Wall Street’s rally to close up 1.2% did nothing to encourage local investors, which saw Australian indexes stay in the red after early gains, with the All Ordinaries closing down 12.2 points to 6147.3pts and the S&P-ASX 200 index down 9pts to 6078.7.
It was role reversal for the big two in today’s session, with BHP Billiton swapping its green shoes for the red ones, closing down at $39.09 – a loss of 11c or 0.3% – while Rio Tinto firmed $1.31 or 1% to $128.
Alumina wiped off yesterday’s gains following its 17% downgrade to expected underlying earnings for 2007. It’s the second time the company has had to downgrade earnings, after announcing in July last year that earnings would be down from $569 million to $490 million.
Shares in the company closed down 16c (2.5%) to $6.15, with earnings for 2007 now pegged at $405 million.
Some gold stocks succumbed to a bit of profit taking following a good start to the year as the precious metal broke records.
Newcrest Mining shed $1.03 (2.6%) to $38.25, Lihir Gold dipped 3c (0.8%) to $3.91, Sino Gold lost 4c (0.5%) to $7.70, and Kingsgate weakened 12c (2.3%) to $5.02.
Although gold looks to have a bright future ahead of it on the back of US recession fears, HSBC’s James Steel told Dow Jones Newswires that a prolonged recession would likely depress gold prices.
"Should such an occurrence develop, investors may be forced to liquidate hard assets, which may include gold, in ever increasing quantities,” Steel said.
Gold’s February delivery price was up 0.2% to $US881.70 per ounce while spot gold last traded at $876.80/oz.
Highest movers of the day belonged to Greater Pacific Gold, up A0.4c (25%) to 2c, Oroya Mining added 0.7c (21.9%) to 3.9c and Alara Uranium firmed 2.5c (20%) to 15c.
On the other side of the spectrum, Coal Fe Resources lost 5c (31.3%) to 11c, Haoma Mining shed 5.5c (23.4%) to 18c and Azumah Resources closed down 4c (21.1%) to 15c.
