Recession fears cause havoc on world markets
Jitters began when Morgan Stanley warned the US and eurozone were 'hovering dangerously close to recession' and it wouldn't take much to tip the balance
Nikhil Kumar is The Independent's New York correspondent. He was formerly assistant editor on the foreign desk and has also done a variety of jobs on the city desk, where he wrote about markets, commodities and other business and economics topics.
Friday 19 August 2011
World markets collapsed last night, with investors bolting for cover on fears that the US and the eurozone were "dangerously close to recession".
More than £62bn was wiped off the blue chip FTSE 100 index, which slumped by 239.37 to 5092.23 – its worst one-day fall in points terms since November 2008. In percentage terms, the index endured its darkest session since March 2009. European shares fared no better, putting in their worst daily performance since the credit crunch as growth concerns supplemented existing worries about the eurozone's sovereign debt crisis.
The Spanish stock market was down nearly 5 per cent, France by 5.5 per cent, Germany by 6 per cent and Italy by more than 6 per cent. On Wall Street, the Dow Jones average closed 419.63 points, or 3.68 per cent, lower at 10,990.58, while the Standard & Poor's 500 Index fell 4.46 per cent to 1,140.65. The Nasdaq Composite Index dropped 5.22 per cent to 2,380.43.
The jitters began as traders learned that Morgan Stanley had cut its global growth forecast for this year to 3.9 per cent from 4.2 per cent. Striking fear into the heart of investors was the bank's view that, as the world slowed, the US and the eurozone were "hovering dangerously close to recession".
Although their predictions still anticipate growth, with the US expected to expand by 1.8 per cent this year and the eurozone expected to grow by 1.7 per cent, they warned that "it won't take much in the form of additional shocks to tip the balance".
"The main reasons for our growth downgrade, apart from disappointing incoming data, are recent policy errors in the US and Europe, plus the prospect of further fiscal tightening there in 2012," they said, singling out "Europe's slow and insufficient response to the sovereign crisis and the drama around the lifting of the US debt ceiling" for special mention.
The bears did not have to look far for evidence to back up the fears of a dreaded double dip in the world's largest economy. Although the weakness in New York may have been exacerbated by technical factors, sellers found enough fodder in some disappointing economic data out of the US.
First, the US Labor Department said new claims for unemployment benefits had climbed by a higher than expected 9,000 to 408,000 last week.
That was followed up by the news that the Federal Reserve Bank of Philadelphia's index of business conditions in the mid-Atlantic region had plummeted to minus 30.7 in August, down from a positive reading of 3.2 in July, and well below expectations of 3.7. The headline reading takes the index back to levels last seen before the post-financial crisis recession in the US ended in 2009. The flipside of the equity market rout was the scramble into safe havens, chiefly US government debt. The 10-year Treasury note, the most liquid bond in the world, soared in value, pushing the interest rate on that note to below 2 per cent for the first time in history.
Treasuries are even more popular than at the peak of the credit crisis in 2008 – an irony that will not be lost on Standard & Poor's, the agency whose downgrade of the US Government's credit rating earlier this month appears to have been largely ignored.
Similarly, the interest rate on 10-year UK debt, or gilts, fell to an all time low of 2.238 per cent. German debt also saw influx of investors, while gold, the another sought-after haven in times of economic stress, spiked to as much as $1,825.99, the latest in a series of record highs.
- 1 Top 20 misconceptions people believe are true
- 2 'We're not heroes, just tourists': Swedish police officers on holiday stop vicious assault on New York subway
- 3 Black Mass trailer: Johnny Depp might have started making good films again
- 4 Jacob Lescenski and Anthony Martinez: Straight student asks gay friend to High School prom and makes a million Twitter friends
- 5 Australian student Tommy Connolly, 23, adopts his pregnant, homeless 17-year-old cousin to give her a chance at 'a better life'
Top 20 misconceptions people believe are true
Sofyen Belamouadden murder: The inside story of a crime that horrified Britain
'We're not heroes, just tourists': Swedish police officers on holiday stop vicious assault on New York subway
Head transplant: man will be attached to new body in under an hour and aim is immortality, doctor says
Australian student Tommy Connolly, 23, adopts his pregnant, homeless 17-year-old cousin to give her a chance at 'a better life'
The sickening truth about food banks that the Tories don't want you to know
Katie Hopkins on LBC: Listen to caller taking The Sun columnist to task over migrant comments
Migrant boat disaster: Ukip candidate mocks victims in sickening Twitter post
Nigel Farage wants the BBC to stop making programmes like Doctor Who, Strictly Come Dancing, and Top Gear
Global warming: Scientists say temperatures could rise by 6C by 2100 and call for action ahead of UN meeting in Paris
General Election 2015: Britain would become a 'communist dictatorship' under Ed Miliband and Nicola Sturgeon, claims wife of Michael Gove
iJobs Money & Business
£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...
£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...
£22000 - £24000 per annum: Recruitment Genius: This is an opportunity to join ...