January 25, 2022

Fresh Worries About Europe Shake Global Stock Markets

The FTSE 100 in Britain sank 2.9 percent and the Euro Stoxx 50 index of euro-zone blue chips was off 4.7 percent. The DAX in Germany dropped over 4 percent, and the CAC 40 in France tumbled 5 percent by early afternoon despite a fresh volley of efforts by the French government and one of the hardest-hit banks, Société Générale, to calm nerves.

Stocks on Wall Street were expected to open lower. Dow futures were down 2 percent while Standard Poor’s 500 futures fell 2.3 percent. Asian markets also slumped. The Nikkei 225 index closed down 2.3 percent, and the Hang Seng in Hong Kong fell 4.2 percent.

The euro also continued to decline rapidly against the dollar, dipping below $1.35 from $1.41 just over a week ago. Rapid swings like this in currencies are worrisome because they make it hard for businesses to calculate their costs and re-price goods and services quickly in response.

Exporters in the United States especially can hardly afford to see the dollar strengthen sharply at a time when the economy is in danger of slipping back into recession.

Previewing the week, Carl Weinberg, the chief economist at High Frequency Economics in Valhalla, N.Y., declared markets to be “in destabilized mode.”

“What has to happen this week to make it better, we don’t know, because we’ve never seen this before,” he added.

Worries about the health of Europe’s banks have taken on outsized dimensions in recent weeks, contributing to significant volatility in stock markets worldwide. Investors have grown increasingly suspicious that Europe’s efforts to contain the crisis that began in Greece are unraveling.

The Greek finance minister, Evangelos Venizelos, warned over the weekend that the Greek economy would be likely to shrink 5.3 percent this year — a sharp downward revision from the previous forecast of a contraction of 3.8 percent. This would make it even more challenging for Greece, which has been at the center of the continent’s debt woes, to pay its debts.

The stock price of Société Générale and BNP Paribas, both globally interconnected French banks considered too big to fail, plunged up to 12 percent in early trading Monday as investors braced for a possible downgrade to their credit ratings. Moody’s Investor Services had recently warned about their exposure to Greek sovereign debt.

While any downgrade was expected to be small, it would likely fan further turmoil in financial markets, just as the Standard and Poor’s downgrade of the United States by one notch stoked greater volatility than originally anticipated.

Société Générale attempted to head off trouble Monday with a statement before markets opened, saying that it holds relatively little in the way of troubled government bonds from Greece, Ireland, Italy, Portugal or Spain.

The bank said that it was stepping up efforts to reduce costs and strengthen its balance sheet, and that it planned to free up €4 billion, or $5.4 billion, of capital by 2013 through the sale of assets.

The governor of France’s central bank, Christian Noyer, also sought to put out the flames on Monday. “No matter what the Greek scenario, and whatever measures must be passed, French banks have the means to face up to it,” he said in a statement.

That did little to placate the concerns. After trading at €40 in early July, the shares had slid to just above €15 Monday — a level that is considered a key psychological threshold. In what may be a self-fulfilling spiral, investors have been questioning why the shares would be trading so low if the bank is as healthy as its executives and the French government say it is.

The biggest banks in Europe, especially in France, hold billions of euros’ worth of Greek bonds, and investors fear that even a partial default by Greece would sharply diminish the value of those assets, eroding what are perceived to be already weak capital positions.

The latest slide in the currency and stock markets had been set off by the resignation of Jürgen Stark, a key German official at the European Central Bank, on Friday, which highlighted policy discord within the E.C.B.

A much-anticipated jobs program speech by President Barack Obama, meanwhile, had done little to lift the global malaise about the prospects for U.S. economic growth. The Dow Jones industrial average and the Standard and Poor’s 500 index both slumped 2.7 percent on Friday.

China, however, remains one of the world’s main engines of growth, although the pace is moderating, data released Monday showed.

Exports from China in August were up 24.5 percent from a year earlier and imports climbed 30.2 percent. Local banks extended nearly 580 billion renminbi, or $90.8 billion, in loans, in the same month, which was more than analysts had expected.

Bettina Wassener contributed reporting from Hong Kong.

Article source: http://feeds.nytimes.com/click.phdo?i=ad1c5e6ec2496f55786062b96a02f76d

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