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| Fears of global slowdown spark fall on European and US stockmarkets | |
| (about 5 hours later) | |
| Fears of a worldwide economic slowdown and anxiety about the spread of Ebola reverberated around stock markets Wednesday, driving shares around the world sharply down and pushing the price of oil to a four-year low. | |
| After falls in London and New York on Wednesday, Asia extended the selloff in global equities on Thursday as heightened concerns about world economic growth sent Japanese stocks tumbling and U.S. Treasury yields down. | |
| MSCI’s broadest index of Asia-Pacific shares outside Japan extended early losses and was down 0.6% while Japan’s Nikkei stock average tumbled 2.2%. | |
| “It’s clear that people are avoiding risks,” said Takatoshi Itoshima, chief portfolio manager at Commons Asset Management. “People started to doubt that the Japanese market may not be able to keep rising only on the recovering US economy.” | |
| The FTSE 100 closed down 181 points or 2.8% at 6,211 on Wednesday, knocking £46bn off the value of Britain’s top companies. This was its lowest level and biggest one-day fall since June last year. It was also close to a 10% decline from its recent peak on 4 September. | |
| In New York the Dow Jones Industrial Average dropped sharply after European markets closed, slumping 420 points – 2.5% – and dipping below 16,000 before rebounding to 16,141. Its recent high was 17,265, reached on 18 September, the day before the record-breaking float of Alibaba, the vast Chinese internet business. | In New York the Dow Jones Industrial Average dropped sharply after European markets closed, slumping 420 points – 2.5% – and dipping below 16,000 before rebounding to 16,141. Its recent high was 17,265, reached on 18 September, the day before the record-breaking float of Alibaba, the vast Chinese internet business. |
| The Vix volatility index, also known as the “fear index”, which is linked to the outlook for the American S&P 500 index, jumped by 22% to 31.06, its highest level for nearly three years, before dropping back to 26.25, up 15% on the previous day. | The Vix volatility index, also known as the “fear index”, which is linked to the outlook for the American S&P 500 index, jumped by 22% to 31.06, its highest level for nearly three years, before dropping back to 26.25, up 15% on the previous day. |
| In Europe the picture was the same. Germany’s Dax dropped 2.87% while France’s Cac was down 3.63%. | In Europe the picture was the same. Germany’s Dax dropped 2.87% while France’s Cac was down 3.63%. |
| The catalyst for the renewed market turmoil was data indicating the US economy was being affected by a global fall in demand. US retail sales fell 0.3% in September, the first decline since January, and worse than the 0.1% decline expected, while producer prices fell by 0.1%, the first decline since August 2013. | The catalyst for the renewed market turmoil was data indicating the US economy was being affected by a global fall in demand. US retail sales fell 0.3% in September, the first decline since January, and worse than the 0.1% decline expected, while producer prices fell by 0.1%, the first decline since August 2013. |
| Meanwhile, the Empire manufacturing report for New York slumped to 6.17 this month, from 20.5 in September. | Meanwhile, the Empire manufacturing report for New York slumped to 6.17 this month, from 20.5 in September. |
| The US updates followed weaker than expected inflation data from China, with the consumer prices index there hitting a near five-year low and prompting fears of a slowdown unless the central bank acted to revive the country’s slowing economy. | The US updates followed weaker than expected inflation data from China, with the consumer prices index there hitting a near five-year low and prompting fears of a slowdown unless the central bank acted to revive the country’s slowing economy. |
| As global slowdown fears grew, oil slumped to a new four-year low, down 0.34% at $84.75 a barrel, with Opec unwilling to cut supplies even with demand faltering. | As global slowdown fears grew, oil slumped to a new four-year low, down 0.34% at $84.75 a barrel, with Opec unwilling to cut supplies even with demand faltering. |
| The stagnating eurozone economy has also been in the spotlight, in particular Germany, where the government this week cut its growth forecasts for the next two years after growing signs that the country could slide into recession. | The stagnating eurozone economy has also been in the spotlight, in particular Germany, where the government this week cut its growth forecasts for the next two years after growing signs that the country could slide into recession. |
| On Tuesday Greece seemed to be heading for a new political crisis and there were also concerns about the outcome of the European banking stress tests. The test results are due to be published at the end of the month. | On Tuesday Greece seemed to be heading for a new political crisis and there were also concerns about the outcome of the European banking stress tests. The test results are due to be published at the end of the month. |
| Geopolitical tensions – including the protests in Hong Kong, the turmoil in the Middle East and the spread of Ebola, with another case reported in Texas – have also unsettled the markets. | Geopolitical tensions – including the protests in Hong Kong, the turmoil in the Middle East and the spread of Ebola, with another case reported in Texas – have also unsettled the markets. |
| In Greece the Athens market was down on fears of new political turmoil as the country struggles to put its economy back on track. A survey this week showed the Syriza party, which opposes the country’s bailout, had moved ahead of the government and prompted talk of an election early next year. | In Greece the Athens market was down on fears of new political turmoil as the country struggles to put its economy back on track. A survey this week showed the Syriza party, which opposes the country’s bailout, had moved ahead of the government and prompted talk of an election early next year. |
| Greek 10-year bond yields soared by more than 80 basis points to 7.85%, their highest since February, threatening the country’s funding plans and its attempts to leave its bailout programme early. | Greek 10-year bond yields soared by more than 80 basis points to 7.85%, their highest since February, threatening the country’s funding plans and its attempts to leave its bailout programme early. |
| The flood of cheap money supplied by central banks, notably the US Federal Reserve, which has been propping up the market for a number of years, is beginning to be turned off. The Fed is due to end its monthly bond buying programme at the end of October. | The flood of cheap money supplied by central banks, notably the US Federal Reserve, which has been propping up the market for a number of years, is beginning to be turned off. The Fed is due to end its monthly bond buying programme at the end of October. |
| Hopes that Mario Draghi, president of the European Central Bank, would implement a concerted bond buying programme to support the flagging eurozone economy were being dashed by opposition from Germany. | Hopes that Mario Draghi, president of the European Central Bank, would implement a concerted bond buying programme to support the flagging eurozone economy were being dashed by opposition from Germany. |
| On the currency markets the dollar lost ground as analysts said the poor US figures meant it was unlikely the Federal Reserve would raise interest rates in the immediate future. | On the currency markets the dollar lost ground as analysts said the poor US figures meant it was unlikely the Federal Reserve would raise interest rates in the immediate future. |
| But as investors sought havens, gold rose $10 to $1243 an ounce, while UK bonds were also in demand. Ten-year gilt yields fell to 2.055%, reaching their lowest level since June 2013. | But as investors sought havens, gold rose $10 to $1243 an ounce, while UK bonds were also in demand. Ten-year gilt yields fell to 2.055%, reaching their lowest level since June 2013. |
| David Madden, a market analyst at IG, said: “The spike in the Greek 10-year yield and the sudden collapse in the equity markets seems all too familiar, and it looks like we are entering another phase of the eurozone debt crisis.” | David Madden, a market analyst at IG, said: “The spike in the Greek 10-year yield and the sudden collapse in the equity markets seems all too familiar, and it looks like we are entering another phase of the eurozone debt crisis.” |
| Henk Potts, director of global research at Barclays, said: “The stock market is in fear mode at the moment [over] worries about global growth conditions and normalisation of US interest rates. But if the sell-off continues it could prove to be a strong entry point into an asset class that we think will continue to outperform.” | Henk Potts, director of global research at Barclays, said: “The stock market is in fear mode at the moment [over] worries about global growth conditions and normalisation of US interest rates. But if the sell-off continues it could prove to be a strong entry point into an asset class that we think will continue to outperform.” |