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U.S. Automakers Dilemma And Citigroup Job Cuts Negatively Impact Markets

18 November 2008 - Features - Editor

The uncertainty regarding the future of U.S. automakers, reservations about key economic reports to be released later this week, the reality of weak manufacturing data, and Citigroup’s announcement of planned drastic job cuts are all being cited as reasons behind the U.S. stock market’s dismal performance on Monday. The Dow Jones industrial average closed down 2.63 percent, or 223.73 points, at 8,273.58. Standard & Poor’s 500 index was also down 2.6 percent and the Nasdaq composite dropped 2.3 percent. Markets in Europe didn’t fare any better, with London’s FTSE 100 falling 2.4 percent, while Germany’s DAX dropped 3.3 percent and France’s CAC-40 index recorded a 3.3 percent decline.

The dire circumstances that U.S. automakers find themselves in is of deep concern not only to American’s, but to wage earners in the many countries that have dealings with General Motors, Chrysler and Ford. Should even one of these companies fail, widespread job losses are inevitable. On Monday, U.S. Democrats in Congress proposed a $25 billion loan package to assist the three automakers. They are hopeful that the legislation will be passed during a post-election legislative session. The argument put forward to Congress by GM, Chrysler and Ford that their health is crucial to the U.S. economy is a convincing one, when taking into account that jointly they employ around 250,000 people and an estimated four million jobs in auto-related industries may be affected. While there is some dissension as to what form assistance should take, it is generally agreed that the market would benefit from being reassured that the automakers would remain in business and there will not be a big jump in the unemployment rate.

The news that Citigroup intends cutting more than 50,000 jobs in the near future, despite the fact that over the past four quarters the New York City-based bank laid off approximately 23,000 workers, had a negative effect on the market. As at the end of September Citigroup had a payroll of approximately 352,000. While the bank has not yet confirmed what sections of the company would be affected, speculation is rife that its wealth management and investment banking divisions would bear the brunt of staff cuts. Citigroup’s stock is down 68 percent this year, with around a third of its value being lost in the last two weeks. Losses have been spurred on by investor nervousness regarding the economy and financial sector.

Analysts believe that the G-20 summit held in Washington this past weekend, while making world headlines, had little effect on the market even though the leaders attending the summit reached agreement on a number of key issues. There are mixed opinions among investors, analysts and other experts as to how the agreed upon strategies will be put in place, how quickly this would be done, and how effective they may be.

Monday’s light trading volumes indicate that many investors are being cautious. This is understandable when considering the plethora of bad news that is hitting the financial sector on a daily basis.

 


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