World Markets Catch U.S. Financial Flu in a Steep Global Market Selloff

Written by OTCPicks.com

Last Friday congress passed the $700B financial bailout bill and sent it to the President who summarily signed it. It seems that global markets did seem to think that the bailout would save us from a nasty global recession. On Monday global markets endured huge selloffs and a bear market turned into to full-blown panic selloff around the world.

Also, on Monday oil prices plunged, and international stock markets around the world got hammered. Investors rushed for the safe haven of government bonds and gold. Oil dropped to an 8-month low below $88 a barrel on fears that a recession will reduce demand for oil and gas.

European shares were pummeled posted their worst day on record and the Dow slipped below 10,000 points (down 369 points) for the first time since October 2004. Markets are not digesting news of the growing toll from the credit crisis well and widespread fears of a looming global recession are spreading rapidly.

Europe is doing their own sort of bailout and has been active in saving several big European banks. Several European governments have decided to guarantee bank deposits in emergency moves to prop up investor confidence. This triggered a wave of selling, spreading from Europe to Asia before engulfing the United States and Latin America later in the day.

At one point during the day the DOW was down more than 700 points. U.S. markets cut almost half their losses in the last hour of the trading session and the Dow closed down 369 points. Most U.S. averages were down between 3% and 4% on the day. Traders speculated the global selloff might trigger a coordinated global response to thaw credit markets, so things bounced back late in the day. The Dow, however, still closed down at a four-year low and below the benchmark 10,000 point level at 9955.

Trading in Russia and Brazil was so heavy that stock exchange officials halted trading. Russia’s RTS index had it’s biggest one day fall in its 13 year history closing down 19.1 percent. The Bovespa index in Brazil fell 15 percent before regaining ground later on in the session.

Problems in the U.S credit markets have spread into Europe, hampering interbank lending as banks remained reluctant to lend to each other. Investors globally fled to the safety of bonds.

Fears of a global slowdown hammered prices for industrial metals. Copper tumbled 7.3 percent, and aluminum and zinc prices fell by almost 5 percent.

Crude oil prices fell below $88 a barrel to an eight-month low on fears of a global slowdown. Gold futures jumped more than 5 percent at one point and the yen soared across the board. The yen was on track for its largest one-day gain versus the dollar since the Asian crisis in 1998, and its best day against the euro since the launch of the single European currency in 1999. Investors are concerned about the possible disintegration of the European financial system and more U.S. style bailouts might be in store in the European banking system.

The Dow Jones industrial average closed down 369.88 points, or 3.58 percent, at 9,955.50. The Standard & Poor’s 500 Index lost 42.38 points (3.86 percent) to close at 1,056.85, the lowest close since December 2003. The Nasdaq Composite Index fell 84.43 points (4.34 percent) to close at 1,862.96. The S&P financial sector sub-index, which had fallen more than 8 percent at one point during today’s session, closed down 3.9 percent, and the S&P energy index closed down 3.6 percent after earlier falling about 12 percent.

In Europe, the FTSEurofirst 300 index fell 7.75 percent to close at 1,004.90 points, its biggest percentage fall ever besting the 6.3 percent drop that occured on September 11, 2001 U.S. terrorist attacks.

European Banks and commodity shares took the biggest beating with Royal Bank of Scotland sliding 20 percent, Barclays lost 14.7 percent and UBS fell 12.8 percent. Ireland and four other European governments moved to guarantee deposits in an effort to shield banks and bank depositors and to calm growing fears and prevent runs on banks. The euro skidded to a 13-month low against the dollar. The troubled Belgian-Dutch financial group Fortis was saved in a deal with France’s BNP Paribas.

Meanwhile, the credit squeeze has spread from Wall Street to Main street, affecting everything from new home and car loans to student loans, credit card availability and even short-term loans to help businesses expand or meet payrolls. The credit crunch is spreading over a nation where two-thirds of the economy is derived from consumer spending and where there have been nine consecutive months of job losses.

Buckle up your seatbelts folks. It looks like we are in for a very bumpy and protracted ride this time around!