European stock markets recover after another day of tumbles

http://www.theguardian.com/business/2014/oct/16/european-stock-markets-muted-recovery

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Leading shares in London clawed back most of their early losses at the close after another day of market turmoil caused by renewed concerns about the eurozone economy and fears about the prospects for global growth.

The FTSE 100 index recovered after tumbling more than 130 points at one stage. The index of Britain’s leading shares closed down 16 points, at 6196. US stock markets remained steady in early trading with the S&P 500 rising 0.13% to 1864.

Analysts said strong industrial production figures from the US allayed fears that the world’s largest economy was about to catch a cold from continental Europe, which has suffered a run of weak economic figures.

Thursday’s fall in share prices followed a day of market turmoil, when fears about global growth prospects and anxiety over the spread of the Ebola virus hit stock markets. The FTSE 100 tumbled 181 points, or 2.8% on Wednesday, its lowest level in 15 months. It is now down a fraction less than 10% from its recent peak of 6878, reached on 4 September. The all-time peak for the index was 6950, hit on 31 December 1999.

Germany’s Dax and France’s Cac index of leading shares also recovered after contracting by 2% and 3% respectively in early trading to finish marginally down on the day.

The yield on German 10-year bunds fell to a new low of 0.718% as investors abandoned shares for the relative safety of government bonds.

The yield, or the return demanded by investors, on government bonds of riskier European countries increased, with Greek 10-year government bond yields rising to more than 8% for the first time since February.

Markets took fright after inflation for the eurozone fell to a five-year low of 0.3% for September. Economists are worried that prices in the eurozone could start falling and that the currency bloc could be heading back into recession.

The stagnating eurozone economy has been in the spotlight amid signs of weakening growth after Germany showed signs that it could slide into recession.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “The further dip in eurozone consumer price inflation in September will clearly be of serious concern to the European Central Bank as it keeps the deflation spectre very much in sight especially given current stuttering eurozone economic activity and sharply falling oil prices.”

Oil fell by more than $1 a barrel to a four-year low below $83 a barrel, continuing a four-month fall driven by concerns about weakening global growth.

Global shares have been hard hit by mounting concerns about the prospects for economic growth, the spread of Ebola and geopolitical tensions, fears which have also hit the oil price, sending it to a four-year low. Overnight, Asian stock markets extended the losses seen in Europe and the US on Wednesday, with Japan’s Nikkei tumbling 2.2% and Hong Kong’s Hang Seng down 0.7%.

Michael Hewson, chief market analyst at CMC Markets, said in a note to clients: “The reasons for this new jitteriness are not hard to find with the global economic outlook turning darker, and growth downgrades coming thick and fast from all angles, while concerns about the spread of Ebola are inducing fears about travel bans prompting changes in consumer behaviour across the US.”

The catalyst for Wednesday’s market ructions was data indicating the US economy was feeling the effects of a global fall in demand. US retail sales fell 0.3% in September, the first decline since January, while producer prices fell by 0.1%, the first decline since August 2013.

The US updates followed weaker-than-expected inflation data from China, prompting fears of a slowdown unless its central bank acted to revive the country’s slowing economy.

Protests in Hong Kong, turmoil in the Middle East and the effect of sanctions against Russia, which have hit German exports, have also unsettled the markets.