Business World

Wednesday 21 March 2018

Debt Crisis: shares tumble as fears for China add to eurozone debt crisis chaos

A monthly survey by banking giant HSBC showed China's manufacturing remained stagnant in September due to sluggish demand both at home and abroad. Photo: Reuters
A monthly survey by banking giant HSBC showed China's manufacturing remained stagnant in September due to sluggish demand both at home and abroad. Photo: Reuters

Jamie Grierson

Investors turned their backs on the markets today as fears over the economic health of Asian powerhouse China added to the uncertainty surrounding the eurozone debt crisis.

The FTSE 100 Index, which is on course to close its worst three months in nearly nine years, was down more than 2pc, while Germany's Dax lost more than 3pc and the Cac-40 in France shed more than 2pc.

Markets were also spooked by new figures which showed inflation in Europe hiked to 3pc or highs not seen for three years.

This puts pressures on already cash-stapped consumers while it also makes it more difficult for the European Central Bank to lower interest rates to boost spending because its target rate is 2pc or lower.

US shares also fell after a monthly survey by banking giant HSBC showed China's manufacturing remained stagnant in September due to sluggish demand both at home and abroad - fuelling concerns of a global slowdown.

Elsewhere, Greek Prime Minister George Papandreou pressed European leaders, including French President Nicolas Sarkozy, to release the next €8bn bailout instalment for his country.

The uncertainty heightened when striking civil servants forced debt inspectors in Athens to postpone talks to decide whether Greece is making enough progress with its austerity measures.

The markets have experienced high volatility throughout the summer as the sovereign debt crisis and America's creaking public finances fuelled fears of another global recession.

The FTSE 100 Index is set to close the third quarter of the year 14pc lower, the FTSE Group said, which would be the worst performance since the third quarter of 2002, when it fell just over 20pc.

Wall Street's Dow Jones Industrial Average fell more than 1pc after the open as the benchmark index was also on course for its worst quarter since the financial crisis.

Louise Cooper, analyst at BGC Partners, said the markets were "all getting tired with trawling through the various conflicting comments from the many politicians and bankers".

The German parliament yesterday voted in favour of a beefed-up European rescue fund, which initially soothed some concerns over the crisis but optimism faded.

Investors are still troubled by the prospect of a debt default in Greece as the stand-off between the troika - the European Central Bank, International Monetary Fund and European Commission - and Greek officials over its fiscal package continues.

Ms Cooper continued: "The two potential outcomes for this crisis are very different.

"Scenario one is where Germany gets its cash out and writes a very large cheque, despite the legal, constitutional and political problems of doing so.

"Scenario two sees some sort of implosion, possibly involving a Greek default and a banking system meltdown.

"Given these two potentially extreme outcomes, equities swing wildly from optimism to pessimism in a schizophrenic manner."

The apprehension in the eurozone heightened when Spain announced it had nationalised three troubled banks that failed to meet new capital requirements.

The Spanish government now owns more than 90pc of the shares in Unnim, CatalunyaCaixa and NovacaixaGalicia after capital injections.

The banking sector was one of the worst hit today with British banks Barclays down more than 5pc, HSBC off more than 4pc and Royal Bank of Scotland falling nearly 4pc.

Meanwhile, miners, such as copper giant Kazakhmys, and luxury goods firms, including Burberry, suffered as the renewed fears over China's economy surfaced.

The weak manufacturing survey from HSBC came as a report said the cost to insure Chinese government debt against default had risen to its highest level since March 2009.

Kathleen Brooks, research director at Forex, said: "The economic slowdown in China is threatening to drag the Asian powerhouse into the sovereign fray."

Meanwhile, Taoiseach Enda Kenny has ruled out any treaty changes as part of efforts to solve the debt crisis.

However, his comments are at odds with those of European Commission President Barroso who has called for changes to the European treaties as part of a solution to help indebted countries.

“I've made this known to other leaders,” he said, speaking after a meeting in Warsaw, Poland.

“ It's very important that having put Lisbon in place that the governments of the EU work that treaty in the way that it was intended ... I think we have to get on with what we have now, and focus on the potential of the Lisbon treaty to put Europe where we believe it should be, right up there at the very top."

Earlier Mr Kenny spoke to the Greek Prime Minister George Papandreou at the EU Partnership Summit in Warsaw.

"Mr Papandreou is confident that his country can keep its end of this particular bargain."

"It's very difficult on any country in a bailout situation - we know that from our own experience - and it's probably more difficult for Greece, and clearly the troika will come up with their assessment."

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