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

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.

PROMOTED VIDEO
News
ebooksNow available in paperback
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

Reach Volunteering: Charity Treasurer

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

SThree: Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

Ampersand Consulting LLP: Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

Kenyans still waiting for justice over Mau Mau uprising

Thousands join class action over Britain's role in the emergency
Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

The last Christians in Iraq

After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Britain braced for Black Friday
Bill Cosby's persona goes from America's dad to date-rape drugs

From America's dad to date-rape drugs

Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
Clare Balding: 'Women's sport is kicking off at last'

Clare Balding: 'Women's sport is kicking off at last'

As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

Oh come, all ye multi-faithful

The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
Dr Charles Heatley: The GP off to do battle in the war against Ebola

The GP off to do battle in the war against Ebola

Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

Flogging vlogging

First video bloggers conquered YouTube. Now they want us to buy their books
Saturday Night Live vs The Daily Show: US channels wage comedy star wars

Saturday Night Live vs The Daily Show

US channels wage comedy star wars
When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

When is a wine made in Piedmont not a Piemonte wine?

When EU rules make Italian vineyards invisible
Look what's mushrooming now! Meat-free recipes and food scandals help one growing sector

Look what's mushrooming now!

Meat-free recipes and food scandals help one growing sector
Neil Findlay is more a pink shrimp than a red firebrand

More a pink shrimp than a red firebrand

The vilification of the potential Scottish Labour leader Neil Findlay shows how one-note politics is today, says DJ Taylor
Bill Granger recipes: Tenderstem broccoli omelette; Fried eggs with Mexican-style tomato and chilli sauce; Pan-fried cavolo nero with soft-boiled egg

Oeuf quake

Bill Granger's cracking egg recipes
Terry Venables: Wayne Rooney is roaring again and the world knows that England are back

Terry Venables column

Wayne Rooney is roaring again and the world knows that England are back
Michael Calvin: Abject leadership is allowing football’s age-old sores to fester

Abject leadership is allowing football’s age-old sores to fester

Those at the top are allowing the same issues to go unchallenged, says Michael Calvin