Wednesday 22 November 2017

Debt crisis: Trillions wiped off global markets as fears spread

A trader reacts on the floor of the New York Stock Exchange. The Dow Jones Industrial Average plunged 4.3pc Thursday, its worst one-day drop in more than two years, as global markets melted down over fears of another world economic downturn. Photo: Getty Images
Traders work on the floor of the New York Stock Exchange before the closing bell on August 4. Photo: Getty Images reporters

Financial markets are in turmoil again today on ongoing fears that the world will slide into a new recession and concern about the spread of the euro debt crisis to bigger countries like Spain and Italy.

Britain's benchmark FTSE 100 index fell 3.2pc in the first six minutes of trade to 5218.17 but it recovered slightly later.

In Dublin the ISEQ index was down 2.5pc after opening.

Independent Blog: Logic has nothing to do with this feeding frenzy

Ten year Italian bond yields have eased from this morning's euro-era highs of 6.349pc, but are still currently trading at 6.242 this morning.

Spanish markets have bucked the trend and were slightly up.

Yesterday Britain’s FTSE lost £50bn (€57bn) of its value - its biggest fall of the year .

The plunge in share prices came amid rising fears that Italy and Spain, the eurozone's third and fourth largest economies, may need bailouts and widespread worries over the US' economic recovery.

Richard Hunter, head of UK equities at Hargreaves Lansdown stockbrokers, said markets could continue to fall today, particularly if closely-watched jobs data from the US reveals a further slowdown in the economy.

He said: "Investors are pessimistic at the moment, the general market mood is to try to prepare for the worst.

"It's difficult to see anything positive coming from the data today unless they reveal absolutely barnstorming figures."

Worried traders are waiting for today's release of US unemployment figures for July, which is expected to show weak job growth and a rise in the unemployment rate.

European Commission president Jose Manuel Barroso has urged European leaders to rapidly reassess "all elements" of the eurozone's bailout fund, known as the European Financial Stability Facility (EFSF), including its size.

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.

That was also a recognition that rescue packages like the ones given to Greece, Ireland and Portugal would be far too expensive for big economies like Italy and Spain.

But analysts have said the fund will not be able to properly use these new powers at its current size of €440bn.

Olli Rehn, the EU Monetary Affairs Commissioner, said the eurozone's yet-to-be approved €440bn European Financial Stability Facility (EFSF) bail-out fund needs to be credible and respected by markets.

“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

Mr Rehn wasn't specific about numbers, though Willem Buiter, Citigroup's chief economist calculates that the EFSF needs €2 trillion to deal with the latest crisis.

The Dow Jones lost 512.76 points yesterday – its steepest fall since December 2008.

Attention now turns to the US where new job figures will soon be released.

With the worries about a possible new recession partly behind turmoil on stock markets, the much-awaited monthly jobs data could set the market mood later today.

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