Global Markets Slammed, Wiping Out Gains From Recent Trading

By: EW News Desk Team   Date: 19 August 2011

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EW News Desk Team

Always on the look out for the latest news to monitor the state of the world economy.

EconomyWatch, News Desk Team

 

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19 August 2011

The world's major stock markets tumbled back into free fall Thursday on a raft of negative economic indicators and a warning that the U.S. and Europe are dangerously teetering the brinks of a recession. More than US$3.2 trillion has been wiped off from U.S. equity markets since the start of May, leaving the benchmark for U.S. a mere 29 basis points of entering a bear market. 

Asian stock markets on Friday caught a global selling fever after new warnings of world recession coupled with fears that rapid-fire growth in China is set to slow down, AFP reported.

Investors in Tokyo, Seoul and Sydney picked up on the mounting anxiety evident in the United States and Europe, where fresh carnage ripped across the markets on Thursday.

"The bears returned aggressively overnight as very disappointing US economic data and fears over the stability of European banks had traders reaching for the sell button," IG Markets analyst Ben Potter said in Australia. "It looks like we're set for a very ugly end to the week as fear and panic-driven trade once again dominate the market. We could have the added pressure of traders looking to close their positions ahead of the weekend given the high levels of uncertainty." he said.

About an hour after opening, Japan's Nikkei share index had lost 2.17 percent to 8,750.02 with banking and financial shares particularly in the firing line.

Australia's benchmark S&P/ASX 200 was down 2.55 percent at 4,142.60. Hong Kong dived 2.71 percent to 19,473.38 while Singapore's headline share index fell 2.55 percent to 2,752.94 in opening trades.

In Seoul, the benchmark KOSPI was down a hefty 3.87 percent at 1,788.59 with South Korean exporters such as Samsung Electronics and Hyundai Motor hit hard.

The worldwide selloff came after Wall Street investment bank Morgan Stanley warned that the US and eurozone economies were "dangerously close" to a double-dip recession.

Stocks were further punished by a fresh round of gloomy economic data from the United States such as jobless claims, and growing doubts about the ability of European banks to withstand the 17-nation eurozone's debt crisis.

The Dow Jones Industrial Average was down 3.7 percent at the closing bell, while the broader S&P 500 slumped 4.5 percent and the tech-heavy Nasdaq Composite plummeted 5.2 percent.

Losses were even worse in Europe on Thursday, as London stocks closed down 4.5 percent, Paris fell 5.5 percent and Frankfurt dropped 5.8 percent.

Oil prices slumped as traders fretted that an economic downturn could erode global energy demand. Early in Asia, West Texas Intermediate crude for delivery in September was down $1.05 from its New York close at $81.33 a barrel.

Gold and US Treasury bonds -- both safe havens in times of trouble -- broke record ground with bullion reaching $1,837.50 per ounce on the Hong Kong spot market from a previous high of $1,826.10 in New York.

A report in The Wall Street Journal that the US Federal Reserve was worried about the liquidity of major European banks contributed to the selloffs in European markets.

French lenders came under especially intense pressure, with Societe Generale losing more than 12 percent.

"The concern is that the escalating European sovereign debt crisis -- which is now engulfing larger countries -- and the potential fallout for the banking sector and financial markets, could provide a killer blow," said Nick Kounis, an economist at ABN Amro in Europe.

The tumult played out on the currency markets with the euro at $1.4321 and 109.75 Japanese yen, from $1.4337 and 109.70 yen late in New York.

The yen was at 76.64 to the dollar in early Japanese trade, from 76.52 overnight in New York.

"Concerns about a slowdown in the US and global economies, the European debt problems and the stronger yen are all going to weigh on the market," Hiroichi Nishi, general manager at Tokyo's SMBC Nikko Securities, told Dow Jones Newswires.

The concerns are not confined to the developed world. At Deutsche Bank, economists focused on the impact of slower Chinese growth on the rest of the world.

They foresaw a "soft landing" for China this year and next, but concluded that "global stock markets will likely be negatively impacted by a Chinese slowdown".

They said the world's second-biggest economy would grow 8.9 percent this year, down from 10.3 percent in 2010, and by 8.3 percent in 2012, "mostly due to the effect of monetary tightening".

 

 

 


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