THE PORTUGUESE Finance Minister, Fernando Teixeira dos Santos, has played down losses on the Lisbon Stock Market following widespread defaults in the high risk US subprime mortgage lending market.
The minister told Portuguese news agency Lusa that a timely intervention by both US and European monetary authorities had stemmed the tide of instability which has swept the world’s financial markets in the past fortnight wiping an estimated 100 billion US dollars off shares worldwide and 40 million euros in Lisbon.
On Wednesday, August 15, the markets plummeted again in both Asia and Europe and the New York Stock Market only recovered after the US Federal Reserve injected seven billion US dollars of cash into the system.
In New York, alarm bells began to ring when the industrial stock exchange index, the Dow Jones, fell below the barrier limit of 13,000 points. The Nasdaq, which registers technology shares, had also slumped.
In Lisbon, the PSI20 fell 0.52 per cent, partly as a consequence of the instability and uncertainty over the power struggle at Portugal’s largest private bank BCP.
Even more dramatic was the collapse of the Nikkei Stock Market in Japan, which lost another two per cent on Wednesday, although the Chinese Stock Market in Xanghai saw stocks close slightly up.
“I believe that despite this atmosphere, in which we are experiencing some instability, we have reasons to be confident in that the appropriate financial authorities have given an adequate response to the problem,” said Fernando Teixeira dos Santos.
Markets in both Lisbon, Europe and the US were expected to remain volatile on Wednesday (21 August) with the potential for further losses until the full extent of the problems in the US subprime mortgage market is known.
The subprime high risk credit market in the United States is where mortgage loan companies lend money for mortgages and credit consolidation companies buy up debts and reschedule and refinance high risk client loans against home values at a higher level of interest. Lucrative while interest rates are low and employment high, such loans can be defaulted when interest rates rise and clients begin to default on payments – as is the case in the United States.
However, the Bank of Portugal’s Economic Indicator index registered an increase of 2.3 per cent in July for the country’s industrial sales and orders compared with the same period last year.
According to the same institution, private consumption rose by 1.4 per cent in July relative to the same month in 2006. The economic activity indicator is determined by commercial and retail sales, sales of heavy goods vehicles, cement production, the transformer industry and family financial indebtedness.
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