NEW YORK (Reuters) - Britain and Europe slashed interest rates on Thursday amid recession fears deepened by some of the worst U.S. retail sales in decades and an IMF forecast for an economic contraction not seen since World War Two.
The rate cuts failed to halt the slide of global stock markets amid distressing signs including top automaker Toyota halving its profit forecast and expectations the United States could report another 200,000 job losses on Friday.
“It looks like the financial market crisis that hit us full force in September is starting to have a knock-on effect on Main Street and it’s leading corporations to tighten their belts and start to cut staff,” said Chris Rupkey, chief financial economist with Bank of Tokyo-Mitsubishi UFJ in New York.
U.S. President-elect Barack Obama, whose election was aided by voters’ worries about the sinking economy, was to take his first steps in addressing the global crisis on Friday when he would meet with his top economic advisers.
Obama would then hold his first news conference since Tuesday’s election and perhaps answer speculation about who he would name as Treasury secretary. A Reuters poll named New York Fed President Timothy Geithner as the most likely pick.
The Bank of England (BoE) cut rates by a stunning 1.5 points to 3 percent, the lowest level in more than half a century, to combat a slumping housing market, a decline in manufacturing and increased unemployment.
Investors, who had expected a cut of 50 basis points, called the move “astonishing” and “spectacular.”
The European Central Bank (ECB), covering 15 European nations, met market expectations by reducing its benchmark interest rate 0.5 percentage point to 3.25 percent.
ECB President Jean-Claude Trichet did not rule out a further cut though some analysts called the half-point reduction disappointing considering that the Bank of England acted so boldly. The U.S. Federal Reserve’s benchmark rate stands at 1.0 percent.
The Fed has been so active in propping up the financial system, lending huge sums to bankers and dealers, that its liabilities expanded to a record $2 trillion for the first time this week.
Inflation pressures eased further when oil fell another 7 percent with U.S. crude down around the $61 range versus a record $147 per barrel in July. London Brent Crude fell below $60 and traded around $57.
The Dow and the S&P 500 closed about 5 percent lower after European shares fell 5.8 percent and Japanese stocks tumbled 6.5 percent.
Bad news on the corporate and macroeconomic fronts continued. Toyota Motor Corp, the world’s biggest automaker, slashed its annual operating profit forecast by more than half, and its shares tumbled more than 10 percent.
Hobbled U.S. automakers were looking for government aid and prepared to lobby U.S. House of Representatives Speaker Nancy Pelosi. [ID:nSP306564]
The U.S. consumer historically has been counted on to rescue the economy but the International Council of Shopping Centers called the retail sales environment “simply awful” and said the October results were the worst it had seen in 35 years.
Even Mickey Mouse felt the pinch. The Walt Disney Co said bookings at its theme parks have declined “considerably” in the last month, and its shares fell 9 percent in extended trade.
Hedge funds and private equity groups — symbols of the bubble that preceded the credit crunch with their exotic investment instruments and leveraged buyouts — were also hurting. Shares in the world’s largest listed hedge fund, Man Group Plc, tumbled more than 30 percent on fears its clients would withdraw even more money.
Private equity giant Blackstone Group LP reported a $509 million third-quarter loss and said it had cut the value of its investments amid turbulent markets.
The IMF said the world’s developed economies were headed for the first full-year contraction since World War Two and it now expects 2009 global economic growth of 2.2 percent, down 0.8 percentage point from the forecast it gave in October.
Investors were waiting for Obama, due to take office on January 20, to name his Treasury chief.
He was set to meet with former Treasury secretaries Lawrence Summers and Robert Rubin, former Federal Reserve Chairman Paul Volcker, former Securities and Exchange Commissioner William Donaldson and several others on Friday. Super investor Warren Buffett would participate via phone.
Reporting by Reuters bureaus worldwide; Editing by Jason Neely, Brian Moss, Gary Hill