Global markets plunged today as renewed worries about a double-dip recession in the US and the euro zone debt crisis led to a world-wide selloff. The Dow Jones industrial average fell 419.63 points, or 3,68 percent, to 10,990.58; US markets had opened much lower and continued to slide throughout the day, says the New York Times. London’s FTSE 100 index ended the day down by 4.5 percent while the Dax in Germany lost 5.8 percent. For much of the day, the yield on the US Treasury’s 10 year note was below 2 percent, the lowest it has been in 70 years. The price of gold has hit a record high of $1,826 an ounce.
Asian markets had also ended in the red, says CNN. The Shanghai Composite was down 1.6 percent, the Hang Seng in Hong Kong by 1.3 and Japan’s Nikkei by 1.3. Exports from Japan have fallen 3.3 percent from a year ago due to the strong yen and the continuing effects of the March 11 earthquake and tsunami.
“Every piece of economic data that has come out recently has been weaker than expected,” said Grant Lewis, head of economic research at Daiwa Capital Markets in London, in the BBC. “Alarm” arose on Wednesday when an unnamed European bank, out of nearly 8,000 in the euro zone, borrowed $500 million from the European Central Bank. While this is a “relatively modest sum,” this was the first time since February that a bank had requested such a loan: As the New York Times points out, “a shortage of dollars for European banks was one of the features of the 2008 financial crisis.” Fears rose further when the Wall Street Journal reported that US regulators are investigating whether the US units of big European banks will be able to continue financing themselves.
New US data on factory activity, jobs and prices contributed to the downturn. According to a monthly survey by the Federal Reserve Bank of Philadelphia, factory activity in the northeast was down by negative 30.7 points in August after moving up 3.2 percent in July. The jobs market remains weak: Initial jobless claims last week were up by 9,000 to a seasonably adjusted 408,000, more than analysts had predicted. Home sales fell 3.5 percent last month to seasonally adjusted annual rate of 4.67 million homes and already lag behind last year’s sales, which were the lowest in 13 years.
In addition, the Labor Department reported that consumer prices — down 0.2 percent in June — were up 0.5 percent in July, the fastest rate in four months; gasoline prices contributed to the increase.
Virginie Maisonneuve, head of global and international equities at Schroders Investment Management, said specifically that “strong leadership” has been missing not only from the US but from Europe. German Chancellor Angela Merkel and French President Nicholas Sarkozy had met earlier this week to discuss the euro debt crisis. But their call for “true economic governance” for the euro zone, along with a requirement that balanced government budgets be part of constitutional law,” is being seen by analysts as more “talk” when it’s action that is needed, says the BBC‘s market analyst James Hughes from Alpari UK.
Saying that the US and Europe are “dangerously close to recession” and censuring “recent policy errors” — namely, the US debt-ceiling debacle and the European response, or lack of it, to the debt crisis — investment bank Morgan Stanley has cut growth forecasts for both.
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