Wall Street plunged today as investors succumbed to fears that Greece’s debt problems would halt the global economic recovery.
The Dow Jones industrials slid almost 1,000 points before recovering to a loss of 465 points, or 3.7 per cent in late afternoon trading in New York, while the broader S&P 500 index was down 42 points, or 3.5 per cent.
The sudden drop was a painful flashback to the worst days of the 2008 financial crisis. Automated selling software intensified the selling while investors watched protests in the streets of Athens on television.
Fears are running high in the financial markets that the Greek government will not be able to implement austerity measures that would enable it to contain its debt problems. And, in turn, that the country’s problems will hurt other economies in Europe and even the US.
The Dow’s gyrations showed the high emotions in the markets. Down 998.50 points in mid-afternoon, it recovered minutes later to a loss of 465.
“The market is now realising that Greece is going to go through a depression over the next couple of years,” said Peter Boockvar, equity strategist at Miller Tabak. “Europe is a major trading partner of ours, and this threatens the entire global growth story.”
The FTSE 100 Index suffered, closing down 80.9 points or 1.52 per cent to 5261 points amid prospects of a hung Parliament as Britain went to the polls and as rating agency Moody’s stoked more concerns over the crisis spreading. UK banks are at serious risk of contagion, according to Moody’s. The sheer size and “vulnerability” of Britain’s banking sector would present a threat to the economy if the UK’s sovereign creditworthiness was called into question after Greece and its banks were downgraded last week, the ratings agency said in a report.
While Portugal is at the forefront of investor concern over the level of its debt, the UK was in greater danger of sovereign contagion from exposure to the Greek banks, Moody’s said.
Banking assets represent the equivalent of more than 400 per cent of GDP in the UK, compared with 150 per cent in Greece.
“Each of the six banking systems, Portugal, Spain, Italy, Ireland, Greece, the UK ... faces different challenges, but the contagion risk could dilute these differences and impose very real, common threats on all of them,” Moody’s said.
The warning fuelled concerns that the Greek crisis might engulf other debt-laden eurozone economies, as the euro slid to a one-year low against the dollar.
The euro fell below 1.27 against the dollar. The pound strengthened above 1.18 against the single currency at one point – and then took a late slump against the dollar to 1.48. Investors are treating the greenback as a safe haven until the outcome of the general election and the Greece situation is clearer. Germany’s DAX fell 50.19 points, or 0.8 per cent, to 5,908.26. The CAC-40 in France was 79.92 points, or 2.2 per cent, lower at 3,556.11.
In Asia, the Nikkei in Japan recorded its biggest one-day loss since March last year, falling 3.3 per cent to a two-month low of 10,695 as the markets opened after a public holiday. Hong Kong’s Hang Seng lost 221.47 points, or 1.09 per cent, to 20,106 and in Shanghai the Composite index fell to 2,808.3, down 1.7 per cent.
Banks were London’s biggest fallers. Barclays lost 21.05p to 301.7p, HSBC fell 24.2p to 628.4p and Royal Bank of Scotland slipped 2.2p to 48.2p ahead of its latest trading update.
Lloyds Banking Group, which faced protests from its shareholders over pay at the bank’s annual meeting today, saw shares fall 3.5p to 56.6p.
Source : Timesonline
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