Adjustments took place in financial markets yesterday especially now the word is spreading that OPEC will be considering a reduction in the production levels as they no longer can handle the low crude prices. It is clear that the Credit Crisis contagion turned out to be undefeatable, especially after enormous interventions took place in the prior year.
Anchored demand levels that's the main justification used in financial markets which lead to excess of supply in markets, and as the recession fears deepen into markets the deeper prices will sink. In the past two days we witnessed crude breaching the psychological barrier which stands at $40 per barrel, which opened to the path for it to reach a low of $36.10 per barrel yesterday but retrieving back to close at $37.78 per barrel. But as projections augment in markets that OPEC will reduce production crude prices opened at $38.72 per barrel at the Asian session.
The improvement in crude prices had managed to bolster indices across the world, where the Dow Jones industrial average lost only 0.30% or 25.41 points reaching 8448.56 levels, S&P 500 index gained 0.18% or 1.53 points reaching 871.79 levels and NASDAQ added 0.50% or 7.67 points reaching 1546.46 levels.
The falling crude prices are contributing to ease down the trade balance in economies, where it was evident yesterday when the balance of trade deficit in the United States narrowed down with a total of 29% reaching to the narrowest fall since 12 years. The falling appetite of purchasing in the United States had narrowed down the levels of imports from foreign economies with a total of 12% reaching to $183.2 billion and the exports plunged with a total of 5.8%.
We might take the fall in crude prices positively because it's helping in narrowing the trade balance deficits but if we consider the inflationary levels we see that the vast fall in crude prices along with the weakening demand across the globe had managed to ease consumer prices levels to unfavorable levels, so this rapid fall had triggered fear of deflation, as now we can notice that policy makers actions are mainly used to defeat any possibility of deflation.
Bernanake along with the Bank of England governor said on various occasions that unorthodox procedures might take place in order to protect their economies from dipping in this agony.
Also yesterday Bernanake came out to say that the fiscal bailouts will not be enough to stop the fallouts in the world's largest economy, where for the second time he adds that the Federal Reserve might be purchasing damaged assets to stimulate growth.
Markets are waiting for the December retail sales reading; markets project a fall of 1.2% coming slightly better than the previous fall -1.8%, but range falls between the lowest fall of 3.5% and the highest -0.3%;also projections of retail sales less autos falls between a range of -2.6% and -0.4%.
December is one of the months that retailers depend on because citizens start to prepare their present lists, but the prior year had changed the situation obligating citizens to narrow down the lists to the extreme because their household incomes was under severe distress from the endless job terminations which reached almost 2.59 million terminated job which is the highest since World War II.
Fears of falling earnings and more losses had dominated markets in the past two days, leading to huge losses that wiped out all gaines that were recorded earlier. The Dow Jones industrial average lost 3.74% since the beginning of the year and the S&P 500 also lost 3.48% since the beginning of the year and NASDAQ fell the least to -1.94% since the beginning of the year.
The outlook remains gloomy, sales weakened in December which is a result from the endless destructions in the financial markets.