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World Stocks Slide on Dow Collapse, Debt Crisis

Friday, 07 May 2010 08:25 AM

 

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European stock markets trimmed losses Friday as Wall Street futures pushed higher ahead of key U.S. jobs data, though fears that Europe's debt crisis could spread and derail the global economic recovery remained acute.

In Britain, where investors were grappling with uncertain general election results, the FTSE 100 index was down 9.53 points, or 0.2 percent, at 5,251.46, while the pound oscillated wildly.

Germany's DAX fell 35.71 points, or 0.6 percent, to 5,872.55 while the CAC-40 in France was 29.32 points, or 0.8 percent, lower at 3,526.79.

All three indexes had been sharply lower earlier following big declines in Asia — Japan's benchmark Nikkei index closed 3.1 percent lower at 10,364.59 — and Thursday's dramatic slump on Wall Street, when a trading error had pushed the Dow Jones industrial average down 1,000 points at one stage.

The Dow recovered to finish "only" 347.8 points lower and further respite was expected at the open — Dow futures were up 57 points, or 0.6 percent, at 10,514 while the broader Standard & Poor's 500 futures rose 7.7 points, or 0.7 percent, at 1,130.10.

All that could change, however, if monthly payrolls miss expectations — they are released around an hour before trading starts on Wall Street.

The consensus in the markets is that the world's largest economy added a net total of 200,000 jobs in April. That would be up from 162,000 added in March, the most in three years.

Overall, investors around the world are uneasy about the prospect of trouble in the eurozone from Greece's crisis. Many economists say Greece may be insolvent in the end despite an EU-IMF bailout, and there are fears that other countries will face bond market skepticism — and higher borrowing costs that will worsen their finances in a vicious spiral. That could undermine markets and consumer confidence just as Europe crawls out of recession.

They were further rattled by the massive sell-off on Wall Street Thursday.

Though the collapse was blamed in part on a trading error and regulators said they were reviewing what had happened, the drop fed into a prevailing fear that Greece's debt crisis was spreading to Portugal and Spain and possibly further afield. Finance ministers from the Group of Seven nations will hold a teleconference later in the day to discuss the situation, Japan's finance minister Naoto Kan said.

Stock markets weren't alone in seeing massive swings — in the currency markets, the dollar was down a massive 6 yen at 88.68 yen one stage, while the euro dropped to $1.2520, its lowest level in 14 months. The retreats were reversed, though, and the dollar was trading 1.9 percent higher on the day at 92.47 yen while the euro was up 1.1 percent at $1.2773.

"Contagion has smashed risk appetite and created panic while a 'fat finger' glitch has created mayhem in equities," said Neil Mackinnon, global macro strategist at VTB Capital.

"Caution remains the watchword especially in front of the G7 conference call where markets will be wary of support/intervention action," said Mackinnon.

The scale of the current stage in the crisis was evident in the news that the Bank of Japan was offering two trillion yen ($22 billion) in short-term loans to commercial banks to boost liquidity after the dollar had tumbled.

As if all that wasn't enough, investors, particularly in London, had to grapple with the inconclusive outcome of the British general election.

With the counting of the votes coming to an end, it's clear than no party has won enough seats to control Parliament.

"The U.K. will have a coalition government irrespective of the remaining declarations and indeed the media's political focus has long since shifted to this front," said Simon Derrick, senior currency strategist at Bank of New York Mellon.

The uncertainty was most evident in the currency markets where the pound tumbled 1.8 percent to a year low of $1.4481 at one stage before recovering somewhat to be trading 0.4 percent lower on the day at $1.4693.

Across Asia, stocks were hit hard even though the government debt crisis is centered on Europe — all the main indexes ended lower with Taiwan, Indonesia, Thailand and New Zealand down sharply. China's Shanghai Composite Index closed 1.9 percent lower while Hong Kong's Hang Seng index ended around 1.1 percent down.

"Financial markets have begun to over-run policymakers' ability to implement measures to stem the crisis," said Sean Darby, a strategist with Nomura in Hong Kong. "A strong dollar and the flight to quality mean that Asian equities have also been drawn into the contagion."

Oil markets were also oscillating wildly — benchmark crude for June delivery was up 84 cents to $77.95 a barrel in electronic trading on the New York Mercantile Exchange. That modest rise follows a $2.86 slide on Thursday.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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