US hit in global equity slump
US hit in global equity slump
By Richard Beales and Michael Mackenzie in New York and,Christopher Brown-Humes in London
Copyright The Financial Times Limited 2007
Published: February 28 2007 02:00 | Last updated: February 28 2007 02:00
US stocks suffered their steepest drop since the invasion of Iraq in March 2003 as global investors fled risky assets after the biggest fall in Chinese shares for a decade.
The Dow Jones Industrial Average was down more than 500 points at one stage yesterday afternoon as worries about the US economy and subprime mortgage market and a warning from Alan Greenspan, former chairman of the Federal Reserve, about a possible US recession punctured recent market optimism.
European stock markets also sold off, as did higher-risk debt markets. A sharp rise in the yen signalled the beginnings of an unwinding of the global carry trade, where investors borrow in currencies with low interest rates to buy higher-yielding assets elsewhere. Shares in banks fell sharply.
Mainland Chinese shares kicked off the carnage, falling nearly 9 per cent amid fears that the authorities were planning a crackdown to cool the market's exuberance. Traders saw the drop partly as a symptom of broader concerns over global valuations.
"The China explanation seems a little bit too convenient," said Paul Hickey, analyst at Birinyi Associates. "Every day there is some new concern. These things don't matter until they matter, then you get a sell-off like today."
The FTSE Eurofirst 300 index dropped 2.86 per cent - its biggest daily fall for four years - while the FTSE 100 index fell 2.31 per cent, its largest fall since June.
On Wall Street, the Dow Jones Industrial Average was 3.3 per cent, or 415 points, lower at the close, after the New York Stock Exchange had introduced trading curbs during the afternoon - the first time computer trading had been limited since July. The S&P 500 index was down 3.4 per cent.
Leading emerging markets were among the hardest hit, with Turkish shares falling 4.5 per cent, Russia's RTS index down 3.3 per cent and Brazil's Bovespa index off 6.5 per cent.
"Markets that have risen faster than others will face a sharper decline as hedge funds reduce their exposure," said Mary Ann Bartels, chief US market analyst at Merrill Lynch.
The global sell-off was aggravated by a weaker-than-expected 7.8 per cent fall in US durable goods orders in January, although that was partly offset by positive news on consumer confidence and housing. There was a flight to safety in bond markets, with yields on 10-year US Treasuries falling 12 basis points to 4.513 per cent. European junk-rated credit saw one of the biggest one-day rises thatthe derivatives markets have seen.
Bob Parker, deputy chairman of Credit Suisse Asset Management, said: "This is going to be more than just a one-day event and could go on for a few weeks. But it's not the start of a one-year bear market trend."
Simon Hayley, senior international economist at Capital Economics, said: "If today's global sell-off tells us anything, it is that sentiment in developed markets is fragile."
Additional reporting by John Authers and Geoff Dyer
By Richard Beales and Michael Mackenzie in New York and,Christopher Brown-Humes in London
Copyright The Financial Times Limited 2007
Published: February 28 2007 02:00 | Last updated: February 28 2007 02:00
US stocks suffered their steepest drop since the invasion of Iraq in March 2003 as global investors fled risky assets after the biggest fall in Chinese shares for a decade.
The Dow Jones Industrial Average was down more than 500 points at one stage yesterday afternoon as worries about the US economy and subprime mortgage market and a warning from Alan Greenspan, former chairman of the Federal Reserve, about a possible US recession punctured recent market optimism.
European stock markets also sold off, as did higher-risk debt markets. A sharp rise in the yen signalled the beginnings of an unwinding of the global carry trade, where investors borrow in currencies with low interest rates to buy higher-yielding assets elsewhere. Shares in banks fell sharply.
Mainland Chinese shares kicked off the carnage, falling nearly 9 per cent amid fears that the authorities were planning a crackdown to cool the market's exuberance. Traders saw the drop partly as a symptom of broader concerns over global valuations.
"The China explanation seems a little bit too convenient," said Paul Hickey, analyst at Birinyi Associates. "Every day there is some new concern. These things don't matter until they matter, then you get a sell-off like today."
The FTSE Eurofirst 300 index dropped 2.86 per cent - its biggest daily fall for four years - while the FTSE 100 index fell 2.31 per cent, its largest fall since June.
On Wall Street, the Dow Jones Industrial Average was 3.3 per cent, or 415 points, lower at the close, after the New York Stock Exchange had introduced trading curbs during the afternoon - the first time computer trading had been limited since July. The S&P 500 index was down 3.4 per cent.
Leading emerging markets were among the hardest hit, with Turkish shares falling 4.5 per cent, Russia's RTS index down 3.3 per cent and Brazil's Bovespa index off 6.5 per cent.
"Markets that have risen faster than others will face a sharper decline as hedge funds reduce their exposure," said Mary Ann Bartels, chief US market analyst at Merrill Lynch.
The global sell-off was aggravated by a weaker-than-expected 7.8 per cent fall in US durable goods orders in January, although that was partly offset by positive news on consumer confidence and housing. There was a flight to safety in bond markets, with yields on 10-year US Treasuries falling 12 basis points to 4.513 per cent. European junk-rated credit saw one of the biggest one-day rises thatthe derivatives markets have seen.
Bob Parker, deputy chairman of Credit Suisse Asset Management, said: "This is going to be more than just a one-day event and could go on for a few weeks. But it's not the start of a one-year bear market trend."
Simon Hayley, senior international economist at Capital Economics, said: "If today's global sell-off tells us anything, it is that sentiment in developed markets is fragile."
Additional reporting by John Authers and Geoff Dyer
posted by Carlos T Mock @ 8:46 AM
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