Market pulls out of early nosedive: Economy roundup

 Australian sharemarkets have staged a midday recovery today after falling over 1.4% in the 40 minutes after opening this morning.

By 12.30pm the S&P/ASX200 is trading down 0.3% to 5997.8, just 16.2 points from its opening level of 5981.6 and well away from the 5904.3 low it reached just before 11am.

Australian markets fell after a weak lead from the US on Friday, with the Dow Jones closing down 1.92% to 12,606.30 as markets digested predictions of recession from large US investment banks.

Bad retail news also contributed to the fall, with high-class jeweller Tiffany & Co and American Express both announcing profit downgrades on signs that retail spending by US consumers is drying up.

Crucial economic data on retail sales, housing starts and the consumer price index in the US are all set to be released this week. Markets there and in Australia are likely to suffer further volatility if the data confirms that the US is heading for recession, although weak figures will also increase chances that the US Federal Reserve will cut interest rates when it meets on 30 January.

Australian retailers haven’t escaped the general economic pessimism, with shares in JB Hi-Fi falling 16% and Harvey Norman 10% over last week in line with perceptions that consumer spending in Australia has peaked.

Retailers in Britain are also suffering. According to research by Ernst & Young, British-listed companies issued 107 profit warnings in the fourth quarter of 2007, the highest in six years – with almost 40% of listed retailers announcing they would miss their profit targets.