World stock markets in turmoil

Almost £50bn wiped off leading British shares and huge sell-off on Wall Street amid economic fears Almost £50bn was wiped off the value of Britain’s 100 biggest companies on a day of global stock market mayhem triggered by a deepening of the eurozone crisis and fears for the health of the US economy. After a day of massive of stock market falls in Europe and the US of a kind not seen since the depths of the last economic downturn, traders said on Thursday the atmosphere in the markets was reminiscent of the banking crisis of October 2008. “For many traders this week has felt like the start of the banking crisis in 2008, which would go some way to explaining the panic selling we have seen today,” said Will Hedden, sales trader at IG Index. Rumours were swirling around the City that hedge funds were being forced to sell assets such as gold in order to cover deepening losses on other investments. This led to a surprise 1% drop in the value of gold, which in recent weeks had risen to record highs of more than £1,000 an ounce as a safe haven bet during the eurozone and US debt crisis. Brent crude prices fell 5% to $107 a barrel amid signs of slowdown in the west’s major economies. Anxiety over the debt crisis in the eurozone, and increasingly in Italy, had set the tone for nervous trading during the London morning, but the pace of the decline accelerated as Wall Street opened sharply lower. By early afternoon in New York the Dow Jones had declined by 400 points, resuming the two-week losing streak that was only briefly interrupted on Wednesday. Despite this week’s 11th-hour agreement to raise the US debt ceiling, Wall Street is becoming increasingly anxious about the health of the world’s biggest economy. A major test will come on Friday with the release of keenly watched US employment data that will provide the latest health check of an economy that barely grew in the first half of the year. The FTSE 100 index fell to its lowest close – 5393.14 – since September 2010 after a 191.27 points drop. The 3.43% slump was the index’s biggest daily fall in percentage terms, and the biggest points fall, since March 2009. Banks were particularly hard hit, with falls in the bailed-out banks Lloyds Banking Group and Royal Bank of Scotland leaving taxpayers nursing £28bn of losses. There were big falls by other FTSE 100 companies, including the satellite phone company Inmarsat, which closed 19% lower, and leading miners. The index of leading shares has now shed 422 points since the start of this week, wiping £110bn off its value. It is down 11% since April’s peak. The continued weakness in the UK economy ensured the Bank of England kept interest rates at their record low of 0.5% for the 29th successive month. The president of the European commission, José Manuel Barroso, fuelled anxiety about the eurozone debt crisis by berating European leaders about the speed at which they were responding to the debt crisis, barely a fortnight after congratulating them about their latest deal to rescue Greece. “We are no longer managing a crisis just in the euro area periphery,” Barroso said. “Euro area financial stability must be safeguarded.” He urged European leaders to review “all elements” of the €440bn (£382bn) European financial stability facility and its €500bn replacement, the European stability mechanism. The European Central Bank, which raised interest rates in July to quell inflationary pressures in Germany, gave signals that it was ready to resume buying bonds of troubled eurozone countries. Dealers said the central bank had been buying Portuguese and Irish bonds – but crucially not those of Italy and Spain, where borrowing costs have shot to euro era highs and have become the new focus of the markets. Jamie Dannhauser, economist at Lombard Street Research, said the ECB was “still in cloud cuckoo land. The overriding impression one gets of the ECB is of an organisation unwilling to accept the reality that faces the eurozone. In contrast to other major central banks, the ECB has recently been making hawkish noises – at least, that is, until now.” Despite the intervention by the ECB, continental European markets suffered heavy losses, with Germany’s Dax closing 3.5% lower and the French CAC dropping by 4%, while the euro fell sharply against other major currencies, losing nearly 1.5 cents against the US dollar to $1.4170. The Bank of Japan had sparked frenzied action on the foreign exchanges after intervening to drive down the value of the yen, which has been strong against the dollar. Bond yields – interest rates – in Italy remained stuck above the critical level of 6% while Italian shares plunged amid confusion about the moves in the main stock market index which was experiencing pricing difficulties. Amid the rout, it emerged that police acting on orders from the prosecutors of Trani, a port on Italy’s Adriatic coast, had raided the Milan offices of the rating agencies, Moody’s and Standard & Poor’s, as part of continuing investigations into their role in recent financial turmoil. The chief prosecutor in Trani told Reuters his office was checking to see whether the ratings agencies “respect regulations”. The £1.4bn loser Ivan Glasenberg, chief executive of the commodity trading group Glencore, has emerged as one of the biggest losers of thecurrent stock market sell-off – at least on paper. When Glencore floated on the London stock market in May, the 54-year-old South African’s personal stake was worth £5.76bn. But, by the time the market closed on Thursday, it was valued at £4.31bn – a loss of £130m a week. When it listed, Glencore was valued at about £37bn – bigger than Tesco and nearly twice the size of insurer Prudential – and the float catapulted Glasenberg into the list of the world’s richest 100 people. Since then the shares have fallen 25% from 530p to 396.35p on Thursday night. The Glencore listing created a huge amount of interest as the company was immediately thrust into the FTSE 100 index of leading shares and, from there, it automatically became a key holding in many people’s pension funds. The float also generated massive rewards for a group of faceless traders who had spent much of their careers operating in almost total obscurity. Apart from Glasenberg, four other Glencore billionaires emerged after the company went public: Daniel Maté and Telis Mistakidis, whose fortunes are now worth about £1.7bn each; as well as Tor Peterson and Alex Beard, whose stakes are both currently valued at around £1.5bn. Glasenberg, who has spent his entire career at Glencore, was hired by the company’s founder Marc Rich, the controversial trader best known for being charged by US authorities with trading with Iran, fleeing to Switzerland and then being pardoned by Bill Clinton on the president’s last day in the White House. Rich left Glencore in the mid-1990s when Glasenberg and others took control. Simon Goodley Stock markets European debt crisis United States Europe Jill Treanor Nick Fletcher guardian.co.uk

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