Global stocks fall as U.S. recession fears grip
Pastor Dale Morgan
Global stocks fall as U.S. recession fears grip*
Reuters
LONDON - Shares from Sydney to London sank for a second day on Tuesday,
dragging commodity prices with them and promising a woeful start for
Wall Street as investors dumped assets exposed to the risk of a global
economic slowdown.
European stocks, while off early lows, were down more than 1 percent
after Japan's benchmark Nikkei lost 5.7 percent -- the worst one-day
loss since the session after the September 11, 2001 attacks on the
United States -- while MSCI's measure for other Asian stocks tumbled
more than 7 percent.
"We're in the midst of very bearish sentiment. There's a lot of fear in
this street and worldwide," said Tom Hougaard, chief market strategist
at City Index Markets.
"Everyone is so keen to get rid of their stocks now, which of course is
a good buying opportunity."
MSCI's main world stock index slid 1.8 percent, plumbing depths last
seen in October 2006.
Shanghai copper and zinc futures fell by their 4 percent daily limit as
fears that the risk of a U.S. recession could eat into global growth
killed the appetite for raw materials. London's Brent crude oil contract
slid more than $1 to $85.86 a barrel.
Comments from IMF Managing Director Dominique Strauss-Kahn on Monday
that all developed countries were suffering from the U.S. slowdown
entrenched fears that global growth was hitting a wall.
Adding to the gloom, billionaire investor George Soros said the world
was facing the worst financial crisis since World War Two and the United
States was threatened with recession.
All eyes are on earnings from Bank of America later, anxious to see if
there are further writedowns related to exposure to risky mortgages.
U.S. stock index futures fell around 5 percent, signalling a sharp
sell-off on Wall Street later. U.S. markets were closed on Monday for a
public holiday.
SAFE HAVEN RUSH
But demand for safe-haven bonds soared, pushing the benchmark U.S.
10-year yield to a 4-1/2 year low below 3.5 percent. The 10-year Bund
yield slid to 3.8 percent, levels last seen in December 2006.
The yen also benefited in this risk-averse environment, hitting a 2-1/2
year high against the dollar and five-month peaks versus the euro before
reversing direction.
"There is a panicky environment in the equity market ... This is leading
to risk aversion increasing and the carry trade is now a thing of the
past meaning there is continued strength in the yen," said Audrey
Childe-Freeman, European economist at CIBC.
In a carry trade, investors sell low-yielding currencies such as the yen
to fund purchases of better-yielding but riskier assets.