Saturday 3 December 2016

Debt crisis: Markets dip again after short US jobs boost rally

Independent.ie reporters

Published 05/08/2011 | 15:48

Better-than-expected US employment figures failed to give markets a much-needed boost today as the news was overshadowed by fears of a new US recession and the spread of the euro debt crisis to countries like Spain and Italy.

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Some markets rallied in the short term but the reprieve was short-lived.

While the US Dow Jones opened up it then ran out of steam.

The Nasdaq was off 1.44pc at 2,2519.70, Germany’s DAX was down 2.2pc while the ISEQ lost 1.1pc of its value soon after the US markets opened.

London’s benchmark FTSE 100 index of top shares closed down 2.7pc today at 5,246.99.

Over €148bn (€170bn) was wiped off the value of its shares this week with pension funds also taking a hit on the falls.

World finance leaders are holding frantic talks about the latest financial crisis.

German Chancellor Angela Merkel and French President Nicolas Sarkozy will talk this afternoon as will the EU economic Monetary Affairs Commissioner Ollie Rehn and Bank of England Governor Mervyn King.

Mr Rehn said earlier today that the EU bailout fund or the European Financial Stablity Facility (EFSF) would have to be reviewed although he gave no details.

It currently stands at €440bn but some economists believe that its value will have to be increased trillions if it is to have the ability to deal with the current crisis.

“To be effective the EFSF needs to be credible and respected by the markets. And therefore we need to be continuously assessing it, once up and running, in its objective form with these goals in mind,” he said

Willem Buiter, Citigroup's chief economist, calculated that the EFSF needs €2 trillion to deal with the latest crisis.

The EFSF was equipped with new pre-emptive powers last month, including the ability to buy up distressed government bonds to support their prices or extending credit lines to countries before they are in full-blown crisis mode, but these have to be signed off on by the individual eurozone states.

This afternoon’s stock drop amid rising fears that Italy and Spain, the eurozone's third and fourth largest economies, may need bailouts as their cost of borrowing is heading towards unsustainable rates.

Markets have been in turmoil for days now.

Meanwhile, the creation of 117,000 jobs in July brings the US unemployment rate to 9.1pc, or 0.1pc lower.

Analysts said the jobs news wasn’t fantastic but it could give markets something positive to digest.

Figures of between 70,000 and 80,000 had been anticipated by economists.

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