ISAS Briefs

The aftermath of the Lehman Brothers bankruptcy and the Merrill Lynch sale were somewhat muted in the New York Stock Exchange on 15 September 2008. The Dow Jones numbers did fall, but by a smaller amount than were initially expected. One possible explanation is the difference in expectations in the financial sector and the goods and services sector – the so called ‘financial street’ versus ‘main street’ firms. Oil prices have fallen to less than US$100 a barrel, and commodity prices, including copper, zinc and aluminum have stabilised. Steel demand is no longer rising, and there is a softening of iron ore demand and steel demand. The inflationary pressures caused by commodity price increases as well as oil prices are easing. Even food prices have stabilised globally. There are definite indications that there would be a slowdown of inflation in many countries. This is good news and several central banks are already contemplating easing up interest rates. China did so on 15 September 2008. The United States Fed was expected to reduce interest rates but it has kept the interest rates steady. Instead, the United States Fed has injected liquidity into banks.1 Therefore, along with the bad news in the financial markets, there is good news in the real economy scripts. It is not surprising that, the expectation that the damage will be contained to the financial markets, to those sectors in the real economy that are highly leveraged, and to the secondary markets in equities, would keep recessionary trends at bay. This could be an explanation to the fact that, while prices of commercial bank, investment bank and insurance company shares fell sharply, the prices of refinery shares and other export oriented companies remabded studies.