AAP
On Tuesday 9 August 2011, 2:44 EST
•Downturn fears spread
Global markets have reacted poorly to Standard and Poor's decision to cut the US credit rating.
World equities plunged on Monday and gold topped $US1,700 ($A1,632) for the first time, as investors eyed the prospect of a sharp global downturn and shrugged off international efforts to resolve sovereign debt woes.
Frankfurt closed down by more than 5.0 per cent, Paris was down by 4.7 per cent, and London dived by nearly 3.4 per cent, following heavy US losses as Wall Street reacted to Washington's loss of the top AAA credit rating.
Markets also fretted about the exposure of the global banking sector to the eurozone debt crisis, despite G7 and G20 pledges to bolster the global economy and European Central Bank action on eurozone debt, dealers said.
"Investors are worried about the rising risk of global recession, the threat of a major bank bust and a growing loss of confidence in EU policymakers to properly resolve the eurozone debt and banking crisis," VTB Capital economist Neil MacKinnon told AFP.
"The global financial and economic situation is looking bleak and policymakers are running out of ammunition. Difficult times lie ahead," said MacKinnon, noting that traders were seeking to exit risky equities and preserve their cash.
He added: "In the eurozone, there are worries about some major banks may be in trouble."
European stock markets had enjoyed brief gains in early morning deals but soon dived back into negative territory, while Asian equities finished lower.
London's FTSE-100 index closed down 3.39 per cent to 5,068.95 points, while in Frankfurt the DAX dropped 5.02 per cent to 5,923.27 points. In Paris, the CAC-40 slid 4.68 per cent to 3,125.19 points.
Madrid meanwhile sank 2.44 per cent and Milan shed 2.43 per cent, reversing their earlier gains made after the European Central Bank (ECB) said it was ready to buy eurozone bonds and their governments promised to slash deficits.
"That was the relief rally that was -- and quite frankly I am not surprised," said analyst Howard Wheeldon at London-based brokerage BGC Partners.
"It seems that no matter how the politicians try, markets are in no mood to be taken in. This is a mess and I don't see it getting better any time soon.
"There are so many issues that have all combined at one single point be they from the United States or Europe there can, in my view, be no justification for a rally yet."
As nervous markets re-opened on Monday, financial chiefs and central bankers of the G7 nations, which include Germany and the United States, pledged to "take all necessary measures to support financial stability and growth." The G20 of top industrialised and emerging economies made a similar pledge.
But Asian stocks tumbled on Monday as traders focused on last week's historic downgrade of the United States' credit rating, which compounded concerns over the world's biggest economy as well as the global outlook.
Tokyo closed down 2.18 per cent, Hong Kong tumbled 2.11 per cent, Seoul sank 3.82 per cent and Sydney shed 2.91 per cent.
The stock market falls were echoed by big losses in oil, with crude dropping over three per cent.
Safe-haven gold surged to a record $US1,715.75 ($A1,647) per ounce, before finishing the day at $US1,693 ($A1,625.46) up from $US1,658.75 ($A1,592.58) on Friday.
On Friday, the United States had its top-notch AAA credit rating downgraded for the first time, when Standard & Poor's cut it to AA+ with a negative outlook on debt concerns.
In Monday afternoon deals, the European single currency sank to $US1.4234.
With concern running high that eurozone debt could plunge the world into a new financial crisis, the European Central Bank promised to make major purchases of eurozone government bonds.
The ECB said it would resume bond purchases after Italy and Spain had announced new measures to control their finances and boost their economies, and France and Germany pushed for full and rapid implementation of a plan to avoid future crises.
"Following commitments from the Italian and Spanish governments to fully implement their fiscal reforms, the ECB announced its decision to 'actively implement its Securities Market Programme'; although not explicit in the statement, we take this to imply the purchase of Italian and Spanish sovereign bonds," said Investec economist Victoria Cadman.
"ECB intervention this morning has been taken as a positive move with Italian and Spanish 10-year bond yields having seen a sharp drop now standing around 5.3 per cent and 5.2 per cent, compared to levels above six per cent last week."
However, Cadman also warned: "To our minds, the eurozone crisis has the potential to deepen further. Current proposals appear to be more of a stop-gap than permanent solution."
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32 comments
A Yahoo!7 User 32 minutes ago Report Abuse The powers to be, FBI they are, keep talking about a double dip recession. What a croc of @#$%. This is a CORRECTION. There will be no recovery, as there is in a recession. Just subscribe to the Daily Reckoning, its free you know. I did, best reading I've done. I got out the market months ago, thanks guys
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Please sign in to rate this comment down. 0 users disliked this commentoshackle 42 minutes ago Report Abuse OMG these comments spread doom and gloom. What happened to the Postive Mental Attitude?
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Please sign in to rate this comment down. 0 users disliked this commentA Yahoo!7 User 43 minutes ago Report Abuse Greed is what will ruin us all. We all like to blame the politicians and economists, but aren't the things happening out there a reflection of our day to day living.
How many us have credit card debts we cannot pay, while there is a brand new tv and all the other latest gizmos that in our homes that we so wanted but did we really need them.
Global economic crisis is a gift of the post world war children. A gift of generations who were part of the boom and rise of technology and industries, where the more we spend the better we felt. The concept of saving for a raining day seemed like an old fashioned idea and the more we borrowed the more we could have.
Global economic crisis is a reflection of our own greed for more and the neglect of important things like agriculture. We don't eat we don't live. Focus should be on sustaining the food supply which will be one of the biggest problems we will face.
I like to think of this doom and gloom in the global market as a sign begging for some change and reform not only in the economic policies of the world but an end to the greed cycle of mankind.
I hope this change starts somewhere within each of us, starting with me.
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Please sign in to rate this comment down. 0 users disliked this commentkon k 46 minutes ago Report Abuse LMAO all those people who arnt investing are loooooosing out, have you ever heard of down trading? you can also make money when the stock price is slipping. Im loving it.
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Please sign in to rate this comment down. 0 users disliked this commentMick D 46 minutes ago Report Abuse It's all Julia's fault...she did it! I SAW THE WHOLE THING OFFICER!...All we have to do to save the world is send in BUDGIE MAN!!!.....make way! make way Obama! ....Budgie Man is on his way to save the world from the evil Julia (who is the leader of the Communist Plot to bring down capitalism) It is all in the Bible...Gog and Magog will fight a titanic battle to save mankind!.....
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Please sign in to rate this comment down. 0 users disliked this commentmark 47 minutes ago Report Abuse Here we go again another stock market crash. Will Julia scrap the carbon tax as families wont be able to afford it? will the government bail out the banks again so they can record massive profits and leave the working man struggling.. i say scrap the tax and if the banks look to falter protect our cash in them but let them fall.. now can we get our ever dependable super funds to guarantee our capital that they so happily lose on a regular basis. you know the super the governments make us have that has been constantly dwindled away by the superannuation funds fee's and poor management of our money, the super they make us have so that the government wont have to pay a pension..
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Please sign in to rate this comment down. 0 users disliked this commentLuke Trainor 58 minutes ago Report Abuse to quote a song by bob dylan,,, come you masters of war,,, and yes the times they are a changing.
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Please sign in to rate this comment down. 0 users disliked this commentRussell's 59 minutes ago Report Abuse Tell me this: America's money has been devalued, America's unemployment is rising, Italy and Spain are in financial trouble and Europe is bailing them out... So how come the Aussie dollar is dropping???????????
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Please sign in to rate this comment down. 0 users disliked this commentfreedom 1 hour ago Report Abuse guys, we dont have any good and smart polititian any more.
the only one i can think of is Paulin Hanson.......yeh yeh, exceptional idea she has,
........lets print triliion of dollars and lend them to the world.......hic hic hic
dumb dumb.......folks, all you can do is prepare, and watch the it hopelessly....
good luck to all. i got my money reserved anyway.......
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