By CHRISTINE HAUSER and MATTHEW SALTMARSH
Published: September 21, 2011
Global markets tumbled Thursday as investor pessimism about the outlook for the United States and European economies was deepened by weak data for the euro zone and a grim assessment from the Federal Reserve.
The downcast mood appeared to be reflected across the board. Stocks fell in Asia, Europe and on Wall Street, where equities were down more than 3 percent in midday trading. Bond prices soared for a fifth consecutive trading session, pushing the United States benchmark yield to new lows, and commodities such as oil and precious metals retreated.
“Today, we really seem to be stuck in a negative spiral,” said Matthias Jasper, head of equities at WGZ Bank in Düsseldorf. “Investors just want to keep their exposure low and watch from the sidelines.” Taking its cues from markets in Asia and Europe, the stock market in the United States raced lower at the opening. By noon, the Dow Jones industrial average was down 411.86, or 3.7 percent, at 10,712.98. . The Standard & Poor’s 500-stock index lost 3.4 percent and the Nasdaq composite was down 3.1 percent.
In Europe, the benchmark Euro Stoxx 50 index was down 4.9 percent. The FTSE 100 in London closed down 4.67 percent and the CAC 40 in Paris was down 5.25 percent.
Commodities fell. Crude oil futures traded in New York were down $4.79, or 5.5 percent, at $81.10 a barrel.Gold, considered a safe haven asset, was down sharply. Comex gold futures declined more than 4 percent at $1,736.
“I think that the market had performed so bullishly across all the precious metals that a correction was probably in the offing,” said James Steel, an analyst at HSBC. “And it may have been used as a convenient place for some profit-taking.”
When the price of gold moved so quickly below $1,800, he added, it encouraged further selling. With sustained equity losses, investors could be using gold as it was meant to be used — to raise cash.
“This might sound perverse but gold is actually fulfilling its traditional role allowing you to raise cash in uncertain times,” Mr. Steel said.
Paul Zemsky, the chief investment officer of multi-asset strategies for ING Investment Management, said crude was falling, as were industrial metals such as copper, as the markets realigned their expectations for the global economy as weak data continued to trickle out of Europe and other regions.
“As people ratchet down their growth expectations, we need less commodities,” he said. “It is a pretty ugly day for stocks.”On Thursday, the yield on 10-year United States Treasury securities hit a new low of 1.76 percent.
Stocks had fallen in the United States 2 percent or more on Wednesday after the Federal Reserve announcement that a complete economic recovery was still years away, adding that the United States economy has “significant downside risks to the economic outlook, including strains in global financial markets.”
The Fed offered the grim assessment of the economy as it also announced it would buy long-term Treasury bonds and sell short-term bonds to help stimulate lending and growth.
“The initial and follow-up reaction from the equity market is likely the realization that the Fed has little left to offer, that Washington is a mess, and their only hope is to ‘ride it out’ over a long period of time,” said Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan & Company.
“This is about to get ugly and there is very little anyone can do about it,” he added in a research note
The Fed pointed to a number of long-term problems in the American economy, including high unemployment and a depressed housing market. In addition, Moody’s Investors Service downgraded ratings on three big American banks — Bank of America, Wells Fargo and Citigroup — saying government support had become less likely in the event of financial trouble.
The Fed’s statement “continued to suggest that the Fed funds rate will remain on hold until at least mid-2013,” said Rob Carnell, an analyst at ING in London. He added that quantitative easing could be introduced as early as November.
But analysts also attributed the steep declines on Thursday to fears about the economic outlook on both sides of the Atlantic, as investors remained unnerved by the failure of policy makers in the euro zone to resolve the region’s debt crisis. There were also concerns that China’s growth rate would start to slow, they said.
A closely watched economic report from the euro zone — the composite purchasing managers’ index — fell to 49.2 points in September from 50.7 in August, according to Markit, a financial data provider. The reading, released Thursday, was below the consensus forecast of 49.8. Both the manufacturing and services indexes declined.
Analysts said the fall in the euro-area index reflected a combination of slowing global growth, significant belt-tightening in the euro area and growing concern about the escalating sovereign debt crisis.
“Whether or not the economy dips into another recession largely depends on whether governments move to contain the crisis,” said Nick Kounis, head of research at ABN AMRO in Amsterdam. “These surveys suggest that the window of opportunity is closing fast.”
“Clearly the risks of recession are elevated,” he added.
Mr. Jasper of WGZ Bank said the gloomy economic backdrop belied the fact that many companies in Europe are in fact in a positive position in terms of their order books, profit margins and cash positions.
“We’re in a politics-driven market, and it’s hard to see light at the end of the tunnel until we have a workable solution for Greece and stabilization of the situation in Italy and Spain,” he said
In Europe there was still uncertainty about the fiscal outlook for Greece and Italy.
Greece announced a new set of austerity measures Wednesday, aiming to convince international creditors to release a tranche of 8 billion euros in loans needed by mid-October to avoid bankruptcy.
The measures included cuts in civil servants’ wages, lower pensions and a broader tax base. But before releasing the payments, the creditors will probably want to see the measures approved by Parliament and to know more about a new set of privatizations, the details of which are still to be spelled out by the government. According to local media, a parliamentary vote will be held in the next few days.
Speaking to reporters on Thursday, the Greek finance minister, Evangelos Venizelos, said the government’s priority was to keep its commitments to foreign creditors to avoid a similar experience to that of Argentina, which defaulted on its debt in 2001-2.
“The crisis is not what we are living today, namely cuts to wages, pensions and income,” he said. “That is our effort to avert the crisis. The real crisis will be like that of Argentina’s in 2000 — a total collapse of the economy, of institutions, of the social fabric and productive forces of the country.”
Noting that situation “is critical,” he stressed the importance of “being absolutely consistent in fulfilling our obligations so that no arguments or excuses can be used against us.”
In Italy, the government lowered its forecasts for economic growth Thursday but stuck to its goal of balancing the budget in 2013, amid local media reports that the government is moving toward announcing yet another batch of austerity measures.
Economists at Barclays Capital said the government would have to find additional savings of 9 billion to 10 billion euros “to increase the chances of reaching a budget that is close to balanced by 2013.”
On Wall Street, all 10 sectors of the broader market were in the red, from declines of more than 2 percent in telecommunications stocks to more than 5 percent in materials, which are susceptible to growth prospects.
In what may be a bellwether trend, FedEx on Thursday cut its expectations for earnings for the fiscal year, citing a slowdown in global growth. Its stock was down more than 8 percent.In Asia, analysts said the declines on Thursday showed that investors were unsure that the Fed’s action would fully address the economic slowdown in the United States.
The Hang Seng index in Hong Kong led declines in Asia, diving 4.8 percent. The Nikkei 225 index in Tokyo closed 2.1 percent lower, the Kospi in South Korea fell 2.9 percent and the S.&P./ASX 200 in Australia dropped 2.6 percent.
The export-driven economies in Asia, such as South Korea, are most vulnerable to the European and American economic challenges, said Tim Condon, head of Asia research at ING Group in Hong Kong. Durable goods like automobiles and ships will be hurt most, he said.
Additionally, investors were beginning to worry that China’s rate of growth may slow, said Dariusz Kowalczyk, senior economist and strategist at Crédit Agricole CIB in Hong Kong.
The aversion to riskier assets helped prop up the dollar in foreign exchange markets on Thursday. The euro was trading at $1.3469, down from $1.3573 late New York trading.
“It really comes down to political immaturity in both the U.S. and Europe,” said Stephen Davies, chief executive of Javelin Wealth Management in Singapore. “The increasing chance of a U.S. recession and European implosion has shortened the odds of an overall second recession.”
Niki Kitsantonis, Elisabetta Povoledo, Kevin Drew, Robert Pear and Jennifer Steinhauer contributed reporting.
Source
Published: September 21, 2011
Global markets tumbled Thursday as investor pessimism about the outlook for the United States and European economies was deepened by weak data for the euro zone and a grim assessment from the Federal Reserve.
The downcast mood appeared to be reflected across the board. Stocks fell in Asia, Europe and on Wall Street, where equities were down more than 3 percent in midday trading. Bond prices soared for a fifth consecutive trading session, pushing the United States benchmark yield to new lows, and commodities such as oil and precious metals retreated.
“Today, we really seem to be stuck in a negative spiral,” said Matthias Jasper, head of equities at WGZ Bank in Düsseldorf. “Investors just want to keep their exposure low and watch from the sidelines.” Taking its cues from markets in Asia and Europe, the stock market in the United States raced lower at the opening. By noon, the Dow Jones industrial average was down 411.86, or 3.7 percent, at 10,712.98. . The Standard & Poor’s 500-stock index lost 3.4 percent and the Nasdaq composite was down 3.1 percent.
In Europe, the benchmark Euro Stoxx 50 index was down 4.9 percent. The FTSE 100 in London closed down 4.67 percent and the CAC 40 in Paris was down 5.25 percent.
Commodities fell. Crude oil futures traded in New York were down $4.79, or 5.5 percent, at $81.10 a barrel.Gold, considered a safe haven asset, was down sharply. Comex gold futures declined more than 4 percent at $1,736.
“I think that the market had performed so bullishly across all the precious metals that a correction was probably in the offing,” said James Steel, an analyst at HSBC. “And it may have been used as a convenient place for some profit-taking.”
When the price of gold moved so quickly below $1,800, he added, it encouraged further selling. With sustained equity losses, investors could be using gold as it was meant to be used — to raise cash.
“This might sound perverse but gold is actually fulfilling its traditional role allowing you to raise cash in uncertain times,” Mr. Steel said.
Paul Zemsky, the chief investment officer of multi-asset strategies for ING Investment Management, said crude was falling, as were industrial metals such as copper, as the markets realigned their expectations for the global economy as weak data continued to trickle out of Europe and other regions.
“As people ratchet down their growth expectations, we need less commodities,” he said. “It is a pretty ugly day for stocks.”On Thursday, the yield on 10-year United States Treasury securities hit a new low of 1.76 percent.
Stocks had fallen in the United States 2 percent or more on Wednesday after the Federal Reserve announcement that a complete economic recovery was still years away, adding that the United States economy has “significant downside risks to the economic outlook, including strains in global financial markets.”
The Fed offered the grim assessment of the economy as it also announced it would buy long-term Treasury bonds and sell short-term bonds to help stimulate lending and growth.
“The initial and follow-up reaction from the equity market is likely the realization that the Fed has little left to offer, that Washington is a mess, and their only hope is to ‘ride it out’ over a long period of time,” said Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan & Company.
“This is about to get ugly and there is very little anyone can do about it,” he added in a research note
The Fed pointed to a number of long-term problems in the American economy, including high unemployment and a depressed housing market. In addition, Moody’s Investors Service downgraded ratings on three big American banks — Bank of America, Wells Fargo and Citigroup — saying government support had become less likely in the event of financial trouble.
The Fed’s statement “continued to suggest that the Fed funds rate will remain on hold until at least mid-2013,” said Rob Carnell, an analyst at ING in London. He added that quantitative easing could be introduced as early as November.
But analysts also attributed the steep declines on Thursday to fears about the economic outlook on both sides of the Atlantic, as investors remained unnerved by the failure of policy makers in the euro zone to resolve the region’s debt crisis. There were also concerns that China’s growth rate would start to slow, they said.
A closely watched economic report from the euro zone — the composite purchasing managers’ index — fell to 49.2 points in September from 50.7 in August, according to Markit, a financial data provider. The reading, released Thursday, was below the consensus forecast of 49.8. Both the manufacturing and services indexes declined.
Analysts said the fall in the euro-area index reflected a combination of slowing global growth, significant belt-tightening in the euro area and growing concern about the escalating sovereign debt crisis.
“Whether or not the economy dips into another recession largely depends on whether governments move to contain the crisis,” said Nick Kounis, head of research at ABN AMRO in Amsterdam. “These surveys suggest that the window of opportunity is closing fast.”
“Clearly the risks of recession are elevated,” he added.
Mr. Jasper of WGZ Bank said the gloomy economic backdrop belied the fact that many companies in Europe are in fact in a positive position in terms of their order books, profit margins and cash positions.
“We’re in a politics-driven market, and it’s hard to see light at the end of the tunnel until we have a workable solution for Greece and stabilization of the situation in Italy and Spain,” he said
In Europe there was still uncertainty about the fiscal outlook for Greece and Italy.
Greece announced a new set of austerity measures Wednesday, aiming to convince international creditors to release a tranche of 8 billion euros in loans needed by mid-October to avoid bankruptcy.
The measures included cuts in civil servants’ wages, lower pensions and a broader tax base. But before releasing the payments, the creditors will probably want to see the measures approved by Parliament and to know more about a new set of privatizations, the details of which are still to be spelled out by the government. According to local media, a parliamentary vote will be held in the next few days.
Speaking to reporters on Thursday, the Greek finance minister, Evangelos Venizelos, said the government’s priority was to keep its commitments to foreign creditors to avoid a similar experience to that of Argentina, which defaulted on its debt in 2001-2.
“The crisis is not what we are living today, namely cuts to wages, pensions and income,” he said. “That is our effort to avert the crisis. The real crisis will be like that of Argentina’s in 2000 — a total collapse of the economy, of institutions, of the social fabric and productive forces of the country.”
Noting that situation “is critical,” he stressed the importance of “being absolutely consistent in fulfilling our obligations so that no arguments or excuses can be used against us.”
In Italy, the government lowered its forecasts for economic growth Thursday but stuck to its goal of balancing the budget in 2013, amid local media reports that the government is moving toward announcing yet another batch of austerity measures.
Economists at Barclays Capital said the government would have to find additional savings of 9 billion to 10 billion euros “to increase the chances of reaching a budget that is close to balanced by 2013.”
On Wall Street, all 10 sectors of the broader market were in the red, from declines of more than 2 percent in telecommunications stocks to more than 5 percent in materials, which are susceptible to growth prospects.
In what may be a bellwether trend, FedEx on Thursday cut its expectations for earnings for the fiscal year, citing a slowdown in global growth. Its stock was down more than 8 percent.In Asia, analysts said the declines on Thursday showed that investors were unsure that the Fed’s action would fully address the economic slowdown in the United States.
The Hang Seng index in Hong Kong led declines in Asia, diving 4.8 percent. The Nikkei 225 index in Tokyo closed 2.1 percent lower, the Kospi in South Korea fell 2.9 percent and the S.&P./ASX 200 in Australia dropped 2.6 percent.
The export-driven economies in Asia, such as South Korea, are most vulnerable to the European and American economic challenges, said Tim Condon, head of Asia research at ING Group in Hong Kong. Durable goods like automobiles and ships will be hurt most, he said.
Additionally, investors were beginning to worry that China’s rate of growth may slow, said Dariusz Kowalczyk, senior economist and strategist at Crédit Agricole CIB in Hong Kong.
The aversion to riskier assets helped prop up the dollar in foreign exchange markets on Thursday. The euro was trading at $1.3469, down from $1.3573 late New York trading.
“It really comes down to political immaturity in both the U.S. and Europe,” said Stephen Davies, chief executive of Javelin Wealth Management in Singapore. “The increasing chance of a U.S. recession and European implosion has shortened the odds of an overall second recession.”
Niki Kitsantonis, Elisabetta Povoledo, Kevin Drew, Robert Pear and Jennifer Steinhauer contributed reporting.
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