March 3, 2021

Stocks Skid Amid Lack of Action From Leaders

LONDON — Stocks tumbled in Europe and on Wall Street on Thursday led by banks, while bond yields gyrated amid intensifying concerns about the weakening global growth outlook and the euro zone’s ability to find a path out of its debt crisis.

In Europe, there continued to be mixed signals from the authorities about how far they were willing to move to bolster their market support mechanisms. In the United States, weak economic activity has led to speculation about a possible new round of quantitative easing, the program of huge asset purchases, from the U.S. Federal Reserve.

“Everyone is watching for action from policy makers,” said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels. And so far, he added, there had not been enough from Europe and the United States to stem plummeting confidence.

The Bank of Japan intervened Thursday to dampen the value of yen and signaled it would try to stimulate growth, while the Swiss National Bank on Wednesday took monetary steps to weaken the franc. Both currencies have benefited from inflows from investors seeking safe assets.

Having opened higher, European stocks tumbled in late trading and continued their recent slide after a weak opening on Wall Street. The benchmark Euro Stoxx 50 index fell 3.3 percent and the DAX in Frankfurt shed 3.4 percent. In New York the S.P. 500 index was down 3.6 percent in late trading, over a 10 percent drop from its April peak. The Dow Jones industrial average was down 3.3 percent and at one point had lost more than 400 points.

“It’s all about sentiment at the moment and with the worries about sovereign debt, banks are at the center of the storm,” Mr. Gijsels said.

Shares in Lloyds Banking Group tumbled 10 percent in London. Barclays slid 7.8 percent and Royal Bank of Scotland dropped 6.1 percent, its lowest level since late 2009.

Analysts were also wary of possible bad news on Friday when the August U.S. jobs report will be released. A fear haunting markets in the United States is that the economy may be heading for a double-dip recession. Although the fractious debt ceiling debate is over, investors fear that spending cuts and weaker economic data point to a softer economy. The latest weekly jobless data Thursday again showed the economy was still fragile.

Keith Wade, chief economist at Schroders, said the investment house had cut its forecast for U.S. growth to 1.8 percent this year from 2.6 percent. He cited disappointing manufacturing and second-quarter growth data. In a report on the U.S. economy released Thursday, analysts at ING said, “Three years into the recovery U.S. growth remains feeble. The U.S. is starting to look more and more like Japan in the 1990s.”

The European Central Bank tried to act Thursday to calm jittery bond markets. The bank’s president, Jean-Claude Trichet, said the central bank’s program of buying government bonds, which has been inactive since March, had by no means been dismantled. He also announced new steps to keep banks supplied with unlimited, longer-term funds.

Mr. Trichet also said that the risks to growth weakening had intensified.Traders said the central bank had bought Irish and Portuguese government debt during day. Nick Kounis, head of research at ABN Amro in Amsterdam, said “the E.C.B.’s thinking may be shifting” from worrying about inflation to weak growth.But the bank did not cross the line by buying bonds of Italy and Spain, two countries with huge bond markets and currently seen as most vulnerable in the region. The move to buy Portuguese and Irish debt made little sense, given that they are insulated by their official bailouts and no longer have to raise funds on the market, said Michael Leister, a fixed-income analyst at WestLB in Düsseldorf, Germany. Mr. Trichet, however, had “opened the door to acting on behalf of Spain and Italy,” he added.The yield on the Irish 10-year bond fell 13 basis points, or 0.13 percentage point, to 10.50 percent. The Portuguese two-year yield slid 73 basis points to 14.57 percent. Spanish 10-year yields fell three basis points to 6.23 percent, while yields on Italian debt of similar maturity stayed higher at 6.14 percent.

“Over all, sentiment hasn’t changed yet,” Mr. Leister said after the E.C.B. had acted. “Everyone’s afraid that the debt spiral will become a self-fulfilling prophecy. And the E.C.B. is the only institution with the firepower to stop the situation in the short term.”

European leaders committed themselves last month to increasing the powers of the bailout fund, known as the European Financial Stability Facility, to allow it to enter the market itself.

Article source: http://www.nytimes.com/2011/08/05/business/global/european-sovereign-debt-crisis.html?partner=rss&emc=rss

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