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Volatile trading in world markets

By Batuk Gathani

BRUSSELS JULY 6. The European and American stocks rallied strongly on Friday, amid general relief about the absence of a terrorist attack on the American Independence Day.

The present stock rally comes at the end of a highly volatile week as investors' concerns spread about accounting and other financial scandals involving major companies like Enron and WorldCom in the U.S., Vivendi in France and other leading American and European companies. Analysts express caution about reading too much into the current recovery. Earlier in the week, the European stock markets fell dramatically to the lowest levels, wiping out billions of euro in share value.

This had a spillover effect on the U.S. dollar, whose sudden decline triggered havoc on the foreign exchange markets, as many multinational companies hedged against their dollar holdings. In Asia and Europe, with their currencies strengthening against the dollar many European and Asian exporters were forced to accept that their goods have become more expensive, although the decline in value of dollar was good news for U.S. exporters.

Earlier in the week, the Euro was close to nearing parity with the dollar but yesterday, it reached 0.973. The American and some European business methods have been discredited with latest financial and accounting scandals. George Soros, the legendary currency speculator, warned that the dollar could fall by about a third in its value and that the long bear market in the value of the dollar had just commenced.

Not many investors and currency traders, yet share such dire speculation, but there is a psychological impact of a sort. It was also argued that for the world economy and key financial markets, any further weakening of the dollar would be a disaster. A long-term decline of the dollar, if it becomes inevitable, may also trigger inflationary pressure on global markets. According to financial observers in the European Union, it remains to be seen what policy options the European central bank and the U.S. Federal Reserve adopt to cope with the present uncertainty. Earlier, major central banks started to intervene in foreign exchange markets to stem a major collapse of the dollar.

It remains to be seen what reforms are initiated to reform corporate America and Europe, to pave way for more transparency and accountability to retain investor confidence.

The European markets slid by 3-4 per cent but modestly recovered yesterday. The latest plunge began with concern over possible accounting irregularities, in wake of latest revelations from major American and European companies. The current trend would indicate that bowing to shareholders pressure, some chief executives of major companies are under pressure to resign.

The continued European investor alarm over America's Enron and WorldCom accounting scandals and growing foreboding over economic recovery worldwide has had a depressing effect on the markets

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