2 of economic activity in the third quarter

No one expected that the international financial system could be reformed in a day. But, without be accompanied by a precise agenda, statements of intention released at the end of the G20 meeting (see page 7) on the recovery of the world economy and the improvement of the supervision of financial activities are likely to disappoint financial markets. Judging by the initial reactions of the stock markets of the Middle East, the only open Sunday, operators remain perplexed in the degradation of the economic climate.

The trend may therefore remain very chaotic over the coming weeks. Because markets are today facing a deep crisis that have yet confirmed the latest economic statistics published last weekend and share across the Atlantic.

The euro area has officially entered recession for the first time since its creation with a new contraction of 0.2 of economic activity in the third quarter. In the United States, retail sales fell by 2.8 in October, or the strongest decline registered for sixteen years, while unemployment continues to move forward with a record number of weekly claims since 2001.

Job losses

It is true that companies increase announcements of job losses as they review their prospects of activity and results. The US Government, which has already decided to invest directly in the capital of financial institutions rather than buy their toxic assets, as provided for in the Paulson plan, will have to commit to save the automotive sector, weakened by the woes of General Motors, on the filing of balance.

The admission of the pattern of the Federal Reserve, Ben Bernanke, financial markets are still in great difficulty. In a still atmosphere very volatile us stock prices returned week last to their more low for the month of October, thus reverting with levels that they had not known for more than five years. The situation is not better in Europe. Even if the places of the old Continent are managed to limit their losses at the weekend, the trend remains heavily downward.

In Paris, some analysts, the example of two of Aurel, believe even that the market has triggered a new wave of withdrawal with the first goal in the very short term to 3,000 points on the CAC 40 index.

The dramatic deterioration of the global economic Outlook plays a role in the new access of weak financial markets. Operators now published, this Monday, figures for industrial production in October in the United States. If they prove once more lower than expectations, stock risk to costs.

However, the stock market history teaches us that, at the stage of the economic cycle where we we find, the markets, which already took into account the essential bad news, should begin to recover, investors anticipating, beyond the current slowdown, the initiation of the recovery.

Lack of visibility

For Schroders analysts, this dysfunction is a sign of a lack of sustainable visibility. "The problem, explain, is that no one has any idea of the magnitude and the duration of the current slowdown process." The refusal of the markets to anticipate a recovery also has a more technical explanation related to the unwinding of the operations to leverage "hedge funds". Forced to sell their assets before the draining of liquidity in the credit market, these hedge funds are back prices and volatility of the shares, "the latter becoming the collateral victims of the dislocation of other parts of the financial system", as noted by Delphine Georges in Credit Agricole Asset Management.

Several months are probably necessary before that stock prices can move to. By the time the relaxation of monetary policy, now engaged to produce its effect on the real economy.