Australia cuts rates, EU presses for reform
Australia cut interest rates sharply on Tuesday, presaging expected reductions in Europe later this week, and EU leaders pressed for an overhaul of global market rules.
For investors, the worst financial crisis in 80 years has all but eclipsed Tuesday’s U.S. presidential election although the result may offer some relief with the promise of more fiscal stimulus.
Whether Democrat Barack Obama or Republican John McCain wins, he will face a huge challenge in reviving the world’s largest economy, which is already contracting.
Australia’s bigger-than-expected 75 basis point rate cut followed cuts in the United States, China and Japan last week. Britain and the euro zone are expected to follow suit on Thursday with half point reductions, or maybe more.
The recession that authorities have tried to temper with trillions of dollars in bank bailouts, cash thrown into money markets and economic pump-priming measures, looms ever larger.
Australia’s central bank said there was “significant weakness” in major economies in explaining why it cut rates to 5.25 percent, the lowest since March 2005.
“Each of the big developed economies now is either in a severe recession or well on the way,” said Rory Robertson, interest rate strategist at Macquarie in Sydney.
EU REFORM CALL
European Union finance ministers, meeting in Brussels, backed proposals from the bloc’s French presidency for reforming oversight of global capital markets cash till payday advance.
The proposals feed into a summit of EU leaders on Friday to prepare for a world leaders gathering in Washington on November 15, which the president-elect is expected to attend.
German Chancellor Angela Merkel demanded world leaders agree quickly on new rules for financial markets. “It mustn’t take years, it must be done in months,” she said in Berlin.
There is increasing evidence of a severe economic downturn.
Japan’s economy has joined much of the developed world in a recession, economists polled by Reuters say, with GDP seen contracting for a second consecutive quarter as the financial crisis hits exports and capital investment.
Underscoring slowing sales in the car sector, Germany’s BMW abandoned its 2008 earnings forecast and cut production after a 60-percent plunge in quarterly profit.
The woes facing the world’s biggest premium brand automaker followed the worst month in 25 years for the industry in the United States, BMW’s largest market, including big setbacks for General Motors and Ford.