World stock markets plunge as fears of recession intensify

FTSE, Dow Jones, Dax and Cac all fall as investors flee to gilts and gold Global stock markets have resumed their recent slide, weighed down by fears that the world is sliding into a double-dip recession. Concerned that the eurozone debt crisis could be spreading to the US banking sector, regulators in New York have stepped up their scrutiny of the US arms of Europe’s largest banks. Further pressure came from worse-than-expected new jobless claims in the US last week, while inflation was faster than anticipated in July. The FTSE index in London dropped more than 200 points to 5123 at one stage in the early afternoon, a decline of 3.9%, with all 100 stocks on the index down – banking and mining stocks among the biggest fallers, led by Barclays, Lloyds Banking Group and Royal Bank of Scotland. On Wall Street, the Dow Jones plunged more than 330 points in early trading to 11076, a 2.9% drop. Germany’s Dax and France’s Cac lost 4.7% and 3.9% respectively. In Asia, Japan’s Nikkei closed down 1.25% while Hong Kong’s Hang Seng tumbled 1.2% and the Shanghai Composite ended the day 1.6% lower. The yield on UK 10-year government bonds , known as gilts, tumbled to 2.34% – the lowest since 1897 – and gold hit a fresh record high of $1,820.89 an ounce as investors fought shy of equities. Expectations that the world economy will need less oil pushed Brent crude below $109 a barrel, after reaching a two-week high on Wednesday. Meanwhile, the Swiss franc tumbled against the euro and the dollar amid talk that the Swiss National Bank was injecting liquidity to put an end to the currency’s recent surge to record highs. Morgan Stanley warned that the global economy was teetering on the brink of a recession, and slashed its growth forecasts. Citing “recent policy errors” and the prospect of further austerity measures in 2012, it said the US and the eurozone were “hovering dangerously close to a recession over the next six to 12 months”. “While we had been calling for a ‘BBB’ recovery in developed markets all along, the path now looks even more Bumpy, Below-par and Brittle than previously thought,” analysts Joachim Fels and Manoj Pradhan said in a note, adding that emerging markets were not immune either. The US investment bank cut its global growth forecast to 3.9% from 4.2% this year, and to 3.8% from 4.5% next year. Growth in developed market economies is now seen averaging at just 1.5% this year and next (down from previous estimates of 1.9% and 2.4%). A recession is defined as two or more consecutive quarters of economic contraction. “Still, recession is not our base case because the corporate sector looks healthy; household real incomes will be supported by lower headline inflation; and we expect more action from the Fed and the ECB, including rate cuts and more non-standard easing,” the Morgan Stanley analysts said. Fears that the UK economy could slide back into recession intensified after news that retail sales grew by just 0.2% last month, and by 0.1% in the last three months. The latest UK labour market data also painted a worsening picture , with unemployment rising sharply, especially among women and young people. The grim global outlook and turmoil in financial markets prompted the Bank of England’s monetary policy committee to discuss a fresh round of quantitative easing at its meeting a fortnight ago, and its two most hawkish members abandoned their calls for higher interest rates to curb inflation. At Franco-German crisis talks in Paris on Tuesday, Angela Merkel and Nicolas Sarkozy urged closer economic co-ordination and called for a Europe-wide tax on financial transactions to prevent the disintegration of the single currency. Gary Jenkins, head of fixed income at Evolution Securities, said: “The European sovereign debt crisis is likely to remain a feature of markets for some time, but if we see a sharp slowdown in economic activity it could threaten fiscal consolidation in core countries such as France and exacerbate the crisis.” Jenkins noted that one bank borrowed $500m (£300m) for a week from the European Central Bank on Wednesday. “It is the first time a euro area bank has borrowed dollars from the ECB since February. While one shouldn’t read too much into one transaction it could be another indication of tension in money markets.” Recession Global economy US economic growth and recession Global recession Economics Economic growth (GDP) Economic policy Green shoots Julia Kollewe guardian.co.uk

Posted by on August 18, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.