Saturday, 25 October 2008

Global stock markets plunge

So much for a bounce in stocks.

Markets quickly moved sharply lower in Asia on Friday after the opening despite the previous day's gains in the US. The sell-off subsequently spread to Europe. As it turned out, it was during US trading that the decline came to a halt and stocks in the US eventually got off relatively lightly by the end of the day.

Bloomberg reports the market performances.

The Standard & Poor's 500 Index lost 3.5 percent, a smaller decline than European and Asian equities, even after futures on the U.S. measure fell so far that trading was curbed. The U.K.'s FTSE 100 Index sank 5 percent and the pound had the biggest drop versus the dollar since 1971 following a government report showing the economy shrank for the first time in sixteen years. South Korea's economy grew at the slowest pace in four years, driving the Kospi Index down 11 percent...

The MSCI World Index of developed markets declined 4.3 percent to 871.64. MSCI's emerging-markets benchmark fell 7.8 percent to 473.98, completing eight straight weeks of losses, the longest stretch since 1998. The MSCI index covering both regions slumped to the lowest since August 2003. Russia's Micex Stock Exchange halted trading until next week following today's 14 percent retreat...

Europe's Dow Jones Stoxx 600 Index slid 4.7 percent. The MSCI Asia Pacific Index fell 5.7 percent.

The turmoil wasn't limited to stock markets.

Oil tumbled 5.4 percent to $64.15 a barrel even after OPEC's decision to slash production by 1.5 million barrels a day...

The yen climbed to a 13-year high against the dollar as stock-market losses prompted investors to dump higher-yielding assets funded by low-cost loans in Japan.

Economic data yesterday showed that there's good reason for investors to be worried. The UK economy contracted 0.5 percent in the third quarter while the Royal Bank of Scotland's composite index for the euro area dropped to 44.6 in October, the lowest since the survey began in 1998, from 46.9 in September.

While most central banks are likely to cut interest rates in the face of weakening economies, some are being forced to raise rates instead. From Bloomberg:

Denmark's central bank unexpectedly raised the benchmark lending rate by half a percentage point to an eight-year high, showing policymakers will defend the krone even as the economy teeters on the brink of recession.

Copenhagen-based Nationalbanken lifted the rate to 5.5 percent, it said today. The bank's mandate is to keep the krone pegged to the euro in a 2.25 percent band. In the past week, the krone slid 0.1 percent and on Oct. 13 fell as much as 0.7 percent...

Today's Danish rate increase tracks moves in other economies defending small currencies, such as Hungary, which raised the benchmark by 3 percentage points to 11.5 percent on Oct. 22.

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