One (or is it two?) big bank(s) ‘fessing up to financial difficulties has given the global equity market “correction” fresh downward momentum overnight.

David Uren reports:

The Reserve Bank will not intervene to support credit markets following extraordinary turmoil in world markets overnight.

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The European Central Bank made an emergency injection of €95 billion ($150 billion) into money markets and while the US Federal Reserve pumped $US24 billion ($28 billion) into US markets to ensure there was enough money to keep the financial system liquid.

A spokesman for the Reserve Bank said this-morning that the bank was proceeding with normal dealing operations and would not be making a statement about the market conditions.

The ECB action followed steps by BNP Paribas to freeze withdrawals from several of its funds exposed to the US sub-prime mortgage market.

World sharemarkets were stunned by the central bank action, with US Dow Jones index plunging 2.8 per cent, the FT index in the United Kingdom falling 1.8 per cent and Germany’s DAX index dropping 2 per cent.

The local equity market is holding up well, so far at least. Volatility will rule the roost for some time, that is obvious. The big question is whether the ECB knows something we do not.

Henry assumes BNP Paribus’s problems are no worse than those of Macbank here – though perhaps on a bigger scale, and there will be others with speculative funds that take a big hit. But as we have said consistently, go carefully, gentle readers.

Read more at  Henry Thornton

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