$500bn wiped off US shares as stocks fall around globe
Venezuelan chief Chavez set to repatriate $11bn worth of gold from US and UK banks
Published 19/08/2011 | 05:00
US shares had $500bn (€347bn) wiped from their value yesterday as stock markets across the world plummeted on renewed fears of a global recession.
European markets were among the worst hit, but shares fell across the world.
In Ireland the Iseq index lost 4.4pc, while Germany's DAX closed down almost 6pc -- the biggest fall since 2008.
US markets led by the S&P shed 4.46pc, the Nasdaq was down 5.2pc, and the Dow by 3.7pc.
Investments seen as safe havens, including US and German government bonds, the US dollar, and Swiss franc and gold were all pushed higher.
Gold rose to a record high of $1,825.99 beating a high set only a week ago. Gold is seen as a safe haven by many investors even if there is no income.
Venezuelan President Hugo Chavez yesterday took the extraordinary step of calling for his country's $11bn of gold reserves to be shipped to the Central American country from banks in the US and UK.
Morgan Stanley's decision to slash its global growth forecasts rattled the markets around midday. Meanwhile, 'The Wall Street Journal' reported that US regulators were worried about European banks with operations in the US. Yesterday's falls also came on the back of poor economic data from the US and fears that the European banking sector is at risk of a 2008-style liquidity shutdown.
No sector escaped a fall in share prices, with industrial stocks being the worst hit, and currencies linked to commodity-producing countries like Australia also falling.
Bank stocks were undermined after Lars Frisell, the chief economist at Sweden's financial regulator, said they could find themselves unable to borrow if the government debt crisis gets any worse. "It won't take much for the interbank market to collapse," he said.
Morgan Stanley cut its forecast for global growth this year to 3.8pc from 4.2pc, and warned 2012 would be worse than expected.
The US bank believes growth in the euro area will slump to just 0.5pc next year, after previously saying growth could reach 1.2pc. Morgan Stanley blamed Europe's poor response to the debt crisis for the warning.
It blamed "policy errors" -- Europe's slow and insufficient response to the debt crisis, as well as the political drama in the US over its debt ceiling -- for hitting confidence among businesses and consumers.
"Market falls are as bad as it was after S&P cut the US rating two weeks ago, what we're seeing is a rolling market crash," said Joe Gill of Bloxham Stockbrokers last night.
"Investors are just getting out of all shares and trying to find low-risk havens," he said.
Weak economic data added to the depression. The Philadelphia Federal Reserve Bank's index of business activity showed activity is down in what is a key industrial region.
It showed factory activity in the region around Philadelphia had dropped to the lowest level since March 2009.
The number of people in the US signing on for unemployment benefit for the first time rose and July figures showed inflation hit its fastest pace in four months in July.
Crude oil prices tumbled, a sign investors think demand for fuel will fall as growth slows.
The Swiss franc also surged against the euro in spite of the country's efforts to drive down the price paid for its currency.
The euro fell against the franc even though the Swiss central bank is actively working to push down the currency, because its strength is damaging exports. The yield on 10-year US government bonds fell to the lowest level in decades, yielding just 1.97pc to investors.
Joe Gill said investors were buying US bonds and Swiss francs even though it was effectively costing them to invest, highlighting the massive fear of holding any risky assets. (Bloomberg)