- City Fajr Shuruq Duhr Asr Magrib Isha
- Dubai 04:35 05:51 12:21 15:49 18:46 20:03
A Dow Jones news ticker in Times Square, N.Y., carry headlines including reaction to US economy. Investors are frustrated. After the downgrade of the US government's debt rating, many are bracing for their portfolios to take a lasting hit, all while they're left with few options to limit their losses. (AP)
Global stocks took another pounding Monday as worries over the downgrade of US debt outweighed relief at the European Central Bank's purchase of Italian and Spanish bonds to help the two countries avoid devastating defaults.
The world's leading financial policymakers said they were ready to act to contain the uncertainties in the markets but were unable to ease the concerns of stock market investors. The main worry remained centered on Standard & Poor's momentous decision to lower its triple A rating for the US.
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Crashing global stocks send gold to new record of over $1,700
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"The reverberations from S&P's downgrade are still being felt across the globe," said David Jones, chief market strategist at IG Index.
The European Central Bank's risky decision to buy Italian and Spanish bonds helped ease selling pressure in Europe, but only temporarily.
In Europe, Britain's FTSE 100 index of leading British shares was down 2.7 per cent at 5,102 while France's CAC-40 slid 3.6 per cent to 3,227. Germany's DAX tumbled a further 4 per cent at 5,989.
On Wall Street, the Dow Jones industrial average was down 2.8 per cent at 11,122 while the broader Standard & Poor's 500 futures fell 3.5 per cent to 1,157.
The decline in appetite for risk was evident elsewhere. Traditional safe havens like the dollar and the Swiss franc remained strong while the euro was sold off heavily.
So far, the S&P downgrade doesn't seem to be having too much of an impact on US government bonds. The worry has been that the downgrade would prompt investors to demand more, but the yield on ten-year Treasuries has actually fallen.
"Early market reactions suggest that the treasury market will remain well supported," said Jane Foley, an analyst at Rabobank International. "Even though there may be no sharp sell-off in treasuries this week, S&P's decision should at least provide a signal to the US government that it may be foolhardy to continue to take its creditors for granted indefinitely."
In Europe, a particular focus has also been on the bond markets and the ECB's statement late Sunday that it would "actively implement" its bond-buying program to calm investor concerns that Italy and Spain won't be able to pay their debts. Last week, worries over the two countries' ability to keep tapping bond markets contributed to the turmoil in global markets.
Traders said the European Central Bank spent around 2 billion euros, and the yield on Italy's ten-year bonds fell 0.75 per centage point to 5.25 per cent while Spain's tumbled 0.91 per centage point to 5.14 per cent.
Seeking to avert panic spreading across financial markets, the finance ministers and central bankers of the Group of 20 industrial and developing nations issued a joint statement Monday saying they were committed to taking all necessary measures to support financial stability and growth.
"We will remain in close contact throughout the coming weeks and cooperate as appropriate, ready to take action to ensure financial stability and liquidity in financial markets," they said.
However, many analysts think that the international efforts may not be enough to calm jittery markets.
"Investors are concerned about a rising risk of global recession, credit downgrades especially now in the eurozone, such as France, the threat of a major bank bust and a global liquidity trap as investors stay in cash," said Neil MacKinnon, global macro strategist at VTB Capital.
US stocks plunge on downgrade
US stocks dropped sharply on Monday, while Treasury bond prices actually rose in the wake of Standard & Poor's unprecedented downgrade of the US credit rating.
The Dow Jones Industrial Average fell 381.37 points (3.3 per cent) to 11,063.24 shortly after 1430 GMT.
The broader S&P 500 dropped 47.08 points (3.9 per cent) to 1,152.30, while the tech-heavy Nasdaq Composite plunged 108.49 points (4.3 per cent) to 2,423,92.
Standard & Poor's lowered the US long-term sovereign debt rating from AAA to AA+ after markets closed Friday, citing Washington's inability to rein in its mounting deficits.
The sell-off accelerated on Monday after Standard & Poor's extended its downgrade to US mortgage giants Fannie Mae and Freddie Mac, whose bonds are guaranteed by the US government and widely held around the world.
Traders worried that the downgrade would hit the bond markets as well, but instead Treasury prices climbed.
The yield on the 10-year Treasury fell to 2.40 per cent from 2.56 per cent late Friday, while 30-year bonds dropped to 3.74 per cent from 3.82 per cent. Bond prices and yields move in opposite directions.
Gold, another safe-haven asset, hit a new intraday high of ê1,715.75 on the spot market in New York.
World markets, already reeling from fears of spreading eurozone debt contagion, were battered in the wake of the downgrade.
Frankfurt and Paris were both down more than four per cent in afternoon trading, while London fell more than three per cent. The Sao Paulo stock exchange, South America's largest, opened 4.59 per cent lower.
In Asia, Tokyo shed 2.18 per cent, Seoul sank 3.82 per cent, and Sydney fell 2.91 per cent.
Oil prices also fell as traders feared that a new economic downturn could erode global energy demand.
New York's main contract -- light, sweet crude for delivery in September -- plunged ê3.01 to ê83.87 a barrel in early trade, while in London, Brent North Sea crude for September shed ê3.47 to ê105.90 a barrel.
The historic decision by Standard & Poor's to downgrade the United States's credit rating, which had been AAA since 1941, had been widely expected but nonetheless compounded worries about the global economy.
Even before the downgrade, stock markets had plunged last week on concerns that growth in the United States was slowing and the world's largest economy might be on the brink of a double-dip recession.
Financial markets are also on edge over concerns that Italy and Spain could fall victim to the eurozone debt crisis, which has already snared Greece, Ireland and Portugal.
With anxiety high that eurozone and US debt could plunge the world into a new financial crisis, the European Central Bank signaled late Sunday that it would make major purchases of eurozone government bonds, which market sources indicated on Monday had included Italy and Spain.
"The ultimate driver is uncertainty," said Patrick O'Hare, an analyst with Briefing.com.
"Say what one will about the S&P downgrade, the emergency meetings in Europe, the finger-pointing in Washington, and the rebuke from China ... it all adds up to more uncertainty," he said.
On Wall Street, basic materials companies and energy firms were among the worst performers early Monday, with aluminum giant Alcoa dropping 5.2 per cent and oil major ExxonMobil falling 2.9 per cent.
Bank of America plunged 9.6 per cent after it was sued for ê10 billion by insurance group AIG over losses on mortgage-backed securities.
Asia
Earlier in Asia, the repercussions of S&P's downgrade weighed on stock markets.
Among the major markets, Japan's Nikkei 225 stock average closed down 2.2 per cent 9,097.56, while Hong Kong's Hang Seng fell the same rate to 20,490.50. South Korea's Kospi ended 3.8 per cent lower as did China's main exchange in Shanghai.
In the currency markets, the euro was down 1 per cent at $1.4166 while the dollar was down 0.8 per cent at 77.63 yen. The US dollar also hit another record low against the Swiss franc.
Fears over the global economy are having a major impact on oil markets too, with the main New York rate down another $2.65 to $84.23 a barrel.
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