If it wasn't the downgrading of America's credit rating for the first time in history, it was rumours that France was also about to be downgraded. It made money markets very skittish. We also had China publishing an inflation rate on 6.5 per cent - double Australia's rate. Then it was Australia's turn with unemployment edging up to 5.1 per cent - perhaps an early indication that the days of full employment might be behind us.
Global financial markets were frazzled. We saw huge swings both day-to-day, and intra-day. The CBOE VIX (or 'fear') Index rose to levels suggesting the market was getting very nervous. I think the drop we saw in Societe Generale towards the end of the week - down almost 23 per cent at one point - was symbolic of how vulnerable the market was.
There was some more upbeat news, however...two of our biggest banks produced some very healthy financial results and there was also talk of the possibility of several interest rates cuts by the end of the year. The nature of our multi-speed economy though was highlighted by David Jones - posting a drop in fourth quarter sales of over 10 per cent.
Last night Italy announced some new austerity measures designed to return some level of confidence in the country's solvency. Italy is a country pivotal to market confidence levels at present. At the heart of hit, some tax hikes for the rich. It's one step in the right direction.
If the global economy has any chance of improving from here we are going to need to see more tough decision being made. The solutions are out there, whether the world's political leaders can agree on them is another matter entirely.
David Taylor.
