Saturday 24 February 2018

Debt crisis: ECB action boosts stocks but markets volatile

ECB president Jean-Claude Trichet. Photo: Getty Images
ECB president Jean-Claude Trichet. Photo: Getty Images


Emergency action to shore up Italy and Spain helped fend off further turmoil for financial markets today but markets remained volatile ahead of the opening of trading in the US.

There had been fears that the FTSE 100 Index could plunge by another 100 points or more after Standard & Poor's historic decision to strip the US government of its prized AAA credit rating.

The FTSE 100 Index initially fell by more than 60 points or 1.2pc but this was followed by a swift recovery before it fell again by over 1pc wiping out earlier gains.

The improvement, which came after the European Central Bank began buying Italian and Spanish bonds, was most noticeable in the banking sector.

Royal Bank of Scotland was 6pc or 1.8p higher at 30p, while Lloyds Banking Group added 1.9p to 34.7p and Barclays lifted 6.2p to 192.2p.

The recent turmoil has driven gold prices to a record of more than €1,700 an ounce and meant that Randgold Resources was another leading stock on the risers board after a gain of 180p to 5900p.

Most European shares opened lower as investors braced for the backlash from a US ratings downgrade and the eurozone debt crisis.

Markets in London and Frankfurt were down 1pc in opening trade, while Paris was also lower.

Shares in Dublin dropped 0.7pc in early trade.

The Asian stock market declined overnight

The moves by the European Central Bank and the phone calls between the leaders of the world’s seven biggest economies did not allay the fears of investors as stocks were ditched in favour of less risky assets like gold.

Investors believe that the current European Financial Stability Facility (EFSF) for troubled US economies should be increased from €440bn to over €1 trillion but legislation would need to be changed for this to happen.

They also question whether the ECB’s bond buying strategy is enough.

The London market lost 10pc of its value last week as nearly £150bn was slashed from the value of the UK's 100 biggest companies in its worst period of trading since October 2008.

Richard Hunter, head of UK equities at Hargreaves Lansdown stockbrokers, said: "The market has not yet had the chance to react to the US downgrade - even though it was somewhat expected - or weak Asian trading overnight.

"Turbulence remains likely until such time as there are some concrete debt proposals from the US and the eurozone, where potential contagion remains an issue."

The continued market turmoil is further bad news for millions of savers who will have seen their pension funds hit dramatically.

The CAC 40 in France and the DAX in Germany also opened down.

It follows a fall of 2pc overnight for Japan's Nikkei and more than 3pc for Hong Kong's Hang Seng.

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