Stock markets end turbulent week with more losses

 

Market Data

Last Updated at 06:05 ET

Market index Current value Trend Variation % variation
Dow Jones 17778.15 Up 421.28 2.43%
Nasdaq 4748.40 Up 104.08 2.24%
S&P 500 2061.23 Up 48.34 2.40%
FTSE 100 6478.96 Up 12.96 0.20%
Dax 9782.91 Down -28.15 -0.29%
BBC Global 30 7716.95 Up 8.50 0.11%

Major European share markets closed lower on Friday, ending another turbulent week.

Continued fears about a slowdown in the global economy and high levels of debt in the eurozone had driven indexes lower for much of the day.

At one point, European markets were sharply lower, with falls of more than 3% for some leading indexes.

By the close, London's FTSE 100 was down 1%, Paris's Cac was down 1.9% and Frankfurt's Dax was down 2.2%.

The losses leave the 100 index down 13% on the month, with the French and German markets worse hit, losing 18.3% and 24% respectively.

In New York, falls extended in late trade to take the Dow Jones to a close of 1.57%.

Gold remained a favourite with investors flocking to buy into its safe-haven image and spot gold hit a new record of $1,877 before slipping back to $1,846.50.

Alan Brown, Schroders' group chief investment officer, said: "It is the end of a really torrid week."

Investors are worried global growth is slowing, and that major economies may be heading back into recession.

A former governor of the US Federal Reserve, Laurence Meyer, said he thought the US would manage to avoid a downturn: "I think the most likely development is that we get some rebound - modest, disappointing - rebound in the second half.

"We think there are still some underlying strengths and a lot of positive factors, but not enough to keep the economy above trend, not enough to put the unemployment rate on a downward trend."

In addition, the Greek finance minister tried to reassure investors that his country's new bailout deal was not in doubt.

Evangelos Venizelos' comments came after four countries demanded collateral in exchange for their contributions to the 109bn-euro (£95bn) loan, after Finland agreed a deal with the Greek government.

Austria, the Netherlands, Slovenia and Slovakia have all said they want to do the same, which could complicate efforts to finalise the rescue deal. This underlined concerns that the eurozone debt crisis could be far from over.

But Mr Venizelos told Greek radio the bailout "is not in doubt, because it is of vital importance to the eurozone".

Start Quote

Wile E Coyote

The euro's performance has reminded us of the point where Wile E Coyote runs off the edge of the cliff and fails to fall simply because it does not occur to him to look down”

End Quote Simon Derrick Bank of New York Mellon
'Painful realisation'

On Thursday, Morgan Stanley said that the US and Europe were "dangerously close to recession".

The week has been one of steep declines on global stock markets.

Some bank shares across Europe were hit again, with Lloyds down 4.8% in London and France's BNP Paribas down 4.3%.

Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said the latest falls meant the FTSE 100 had fallen 16% so far this year, with debt and growth the two major concerns.

"There is a painful realisation that the rhetoric of the policy makers has yet to translate into any definitive plans, which could go some way in assuaging investors' concerns," he commented.

"There seems to have been little co-ordinated action in an effort either to spur growth or to put in place a roadmap for dealing with the increasingly difficult debt situation of many developed economies, most notably the US and Europe."

A recent poll in Germany suggested three-quarters of those surveyed had little or no faith in Angela Merkel to deal with the eurozone crisis, while a similar poll in France suggested only 33% of people had confidence in Nicolas Sarkozy.

Meanwhile the Spanish government has announced a number of measures designed to cut spending and boost growth as it seeks to reduce its deficit.

The cabinet agreed, for example, a sharp cut in tax on the sales of new properties, to help its battered housing and construction sectors.

Bear market?

In Asia, South Korea's Kospi dropped 6.2%, while Japan's Nikkei 225 fell 2.4% and Australia's benchmark S&P/ASX 200 index ended down 3.5%.

Many analysts are questioning if a bear market - one in which the long-term trend is negative - has now developed and is here to stay.

Start Quote

The most worrying trend on markets in the past 24 hours has not been the collapse in share prices, but it has been the rise in the price of assets perceived by investors to be less risky: gold and US, UK and German government bonds”

End Quote

"Bear markets tend to happen when sentiments are low and that comes from weakened demand and bad news flow," Chou Chong of Aberdeen Asset Management told the BBC.

Tobias Blattner from Daiwa Capital Markets added that markets had got "a bit ahead of themselves" earlier in the year, when big rises were seen, and were now repricing.

"We are back a little bit unfortunately to the period after Lehman in which markets are acting more on rumours - on European banks for example," he said.

"Unfortunately markets are acting less on fundamentals and more on rumours."

Also on Friday, oil prices recovered from early losses, as the dollar weakened, making commodities more attractive.

Brent crude was up almost $2 at $108.62 a barrel, while US light, sweet crude fell 12 cents to $82.26, after hitting a session low of $79.17.

The price of oil had fallen earlier as investors bet that slower global growth would dent demand for crude.

Bond yields

Kevin Peachey explains how you could be affected by market turmoil

On Thursday, there was a sharp rise in the price of bonds issued by countries considered to be the least risky. This caused their yields - the implied cost of borrowing - to plummet to historic lows.

The 10-year US treasury yield briefly dipped below 2% to its lowest level since World War II.

The 10-year German bond yield also fell to a post-war low, while the 10-year UK gilt yield hit the lowest level since the 19th century.

So although the lower cost of borrowing is good news for those countries, the "torrent of money" going into putatively safe US and British government debt is redolent of a worrying trend, according to BBC business editor Robert Peston.

He says it means one of two things: "Either money tends to become harder to obtain by those in the private sector who take the risks which generate economic growth and wealth; or the climate of pervasive anxiety means that even when money is available to consumers and businesses, they don't want to spend or invest it."

 

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  • rate this
    +2

    Comment number 79.

    53. Rumdoodle

    It looks like the global debt bubble is bursting! Maybe we will realise that borrowing and spending is not the way to maintain a sustainable economy.

    Lets suck up the cuts, pay of our debts and be ready for the upturn in a few years time.
    ___________________

    Presuming there is an upturn....

  • rate this
    +2

    Comment number 78.

    Is it any wonder no one is spending and the economy is slowing, many people are living with more month than salary, no pay rises and inflation @ 5%. We have legal loan sharks charging up to 4000% to take loans over a 2 week period. The government is standing watching this happen and it's going to cause even more problems. If we can't learn from past mistakes we might as well turn the lights off!

  • rate this
    +28

    Comment number 77.

    The long term problem is is that Western economies basically can't grow much anymore - why? Because every time they do, the oil price goes up, which in turn induces recession. The world can't produce much more oil than it does right now, meaning that continuing economic growth will be very difficult. You cannot have infinite growth on a finite planet. So much of the debt can never be repaid!

  • rate this
    -2

    Comment number 76.

    "62. William

    How many criminal bankers have been thrown in jail?"

    ----

    Which *criminal* bankers are you referring to?

    Notice I've highlighted the word "criminal"... let's see what your response is...

  • rate this
    +2

    Comment number 75.

    We'll be OK in the UK, though, because according to the Tories, recessions are not caused by the global economy.

  • rate this
    +1

    Comment number 74.

    Our pre-crash "growth" was fed by a constant increase in consumer and corporate debt, which could not go on forever.

    A crash duly followed.

    Governments "saved us" by taking on that debt themselves but didn't solve the problem that we have NO real sources of growth.

    The government rescue held us in place against the current only temporarilly and now we're back being dragged downstream.

  • rate this
    -4

    Comment number 73.

    "There isn't a seperate law for any of the above, unless you can find us all one..."

    Laws as they stand matter little. It's how these laws are applied that matters.
    Zero tolerance as demanded by Cameron and others is just revenge and revenge is not justice!

  • rate this
    +5

    Comment number 72.

    Let the banks fail, & face the concequenses of thier actions. The only ppl that do not like this idea are ppl with a vested interest in the system that keeps them afloat i.e.have money. Ppl with no money (a lot of the population now) have no interest in maintaining this sharade! It is enevitable that more bailouts will be needed as the Gov. chases a $700 trillion derivatives bubble down the drain.

  • rate this
    +1

    Comment number 71.

    26. Doubledoubt

    "London was booming art and music everywhere - then Cameron". London may have been booming but on the back of unsustainable debt and excessive borrowing. Although I am not a massive fan of the measures being implemented as I do own my own business, it is critical we reduce our national debt. It is naive to think this mess is Cameron's doing, he has inherited a poisoned chalice.

  • rate this
    -1

    Comment number 70.

    No comment (or BBC headline) yet about the news out this morning that the UK public finances were in SURPLUS in July. It's early days but at least meeting Osborne's debt reduction forecast for 2011/12 looks more feasible now.

  • rate this
    +5

    Comment number 69.

    For the love of money is a root of all evils...

    And now we are seeing the consequences of this...

  • rate this
    +6

    Comment number 68.

    Charging between 1000% and 3000% interest on loans to less well off people is an OUTRAGE.
    These ATTROCIOUS loan companys are able to advertise on TV, companys like ITV now WILLINGLY take these advertisers money.

    Have ITV got NO MORALS, NO DECENCY.

    Such legalised ROBBERY is enabled as result of economic conditions & PATHETIC USELESS GOVERNMENT, THE POOREST ARE TARGETTED BY LOAN TERRORISTS

  • rate this
    0

    Comment number 67.

    51,

    And Obama promised change you can believe in!! What change? The problem is that most political leaders and their advisors haven't got a clue what to do.!

    Dare I suggest that they look to Keynesian economic theory as a possible answer. That is invest in captal projects thoughthis might mean borrowing, but through the mutiplier effect pay off the loan through the increase in tax revenue.

  • rate this
    +4

    Comment number 66.

    The price of oil did fall the other day. If the USA economy goes into recession, it could seriously mean we are heading for a " depression " which happened in the 1930s. As we are now a 24 hour society and due to all Countries trading with each other, It's very obvious that it triggers downfalls in every country Something very seriously needs to change!. To stop this from happening.

  • rate this
    -6

    Comment number 65.

    "3. Rolfe

    ...that would mean that we would have to let the banking system fall over. In Iceland it did and ordinary people are getting on fine. I say let the banks fall"

    ----

    Iceland went bankrupt. Did you forget that l'il nugget?

  • rate this
    +2

    Comment number 64.

    PFI debt is not part of the national debt. So the markets look at the UK debt & know that it grossly understates the true position.This in turn, partly because the figure is unknown (deliberately - or possibly because the Treasury mandarins are numerically challenged!) and also becasue it shows that the UK Government is very bad at managing the country's finances - leads to a collapse. 400ch

  • rate this
    +3

    Comment number 63.

    Is this just more of the financial woes, of how they have plundered the worlds economies for decades. If I had invested my first wage packet, of £3 in a savings account at 5% compound interest, per annum today it would be worth £350. Yet that same figure has endured an inflation rate of 1475% and in todays money would be worth 20 pence, yet could only purchase goods to the value of £45.

  • rate this
    +12

    Comment number 62.

    "So Bankers are allowed to riot, loot, commit arson & murder?"

    You know perfectly well that is not what I meant, try and argue like an adult please!
    Compare the zero tolerance approach to the rioters with the absolute lily livered approach to fraud committed by bankers and others.
    How many criminal bankers have been thrown in jail?

  • rate this
    -2

    Comment number 61.

    "29. William

    I agree with this obviously but the reality is there will be more rioting.
    When there is one law for the bankers, speculators and politicians who caused this mess"

    ----

    There isn't a seperate law for any of the above, unless you can find us all one...

  • rate this
    +10

    Comment number 60.

    #9.Green Future wrote:
    "The problems we *all* face ..."

    All?
    Some of us face it more than others...
    Those that caused in the first place are faring fairly well, I would say.
    None were brought to justice, maybe except Madoff that ran that huge Ponzi... Well many developed world governments run Ponzi of their own, it's called "pension scheme" or "budget deficit"...

 

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