Fears for world economy wreak carnage on stocks, oil
European stock markets plunged in morning deals following a heavy sell-off across Asia triggered by a suspension to trading in China, the world’s second biggest economy and key driver of commodities consumption.
Wall Street had already faltered on Wednesday, with dealers spooked by a World Bank report cutting its global growth forecasts again.
At about 1215 GMT, London’s benchmark FTSE 100 index was down a hefty 2.7 percent compared with Wednesday’s close.
Leading eurozone markets Frankfurt and Paris shed 3.5 and 2.7 percent respectively, while Madrid and Milan were each down by about 2.5 percent.
The smaller Nordic markets lost between three and four percent.
“Equity markets are continuing their steep losses… with investor sentiment being pressured by various factors,” said Lukman Otunuga, research analyst at trading group FXTM.
“These include the resumption of fears over global growth following weak data from China… while increased geopolitical tensions between Saudi Arabia and Iran and an unexpected nuclear test from North Korea have also encouraged investors to dodge away from riskier assets.”
The week’s geopolitical developments have combined to heap further pressure on oil prices, sending New York’s main crude contract sliding Thursday to a 12-year low at $32.10 a barrel.
But gold was benefiting from its status as a haven investment, while a “rush to the safety of sovereign bonds is underway,” noted Brenda Kelly, head analyst at London Capital Group.
“The (German) bund is helping the euro retrace higher against the dollar and the pound,” she added in a note to clients.
The euro, up to $1.0858, won a boost also as official data showed that eurozone unemployment dropped to its lowest level in four years in November.
– China suspension -Chinese markets were suspended Thursday for the second day this week after they fell more than seven percent, leading an Asia-wide sell-off as Beijing weakened the value of the yuan currency by the most since August.
Regulators in China called an end to trade within just 30 minutes of opening after the central bank weakened the value of its yuan currency by 0.51 percent against the dollar.
The drop was the biggest since August when the value was cut by five percent in a week — sparking weeks of global market turmoil over worries Beijing did not have a handle on its economic crisis. The yuan is now at its weakest in five years.
Trading was halted just before 10:00 am (0200 GMT) as a “circuit breaker” kicked in after the benchmark Shanghai index slumped seven percent and the Shenzhen composite index, which tracks stocks on China’s second exchange, tumbled 8.2 percent.
The stop — activated when markets fall more than seven percent — was also triggered on Monday, its first day of operation.
American financier George Soros on Thursday warned that weaker world markets were showing signs of a financial crisis reminiscent of the 2008 crash.
A weaker Chinese yuan was “inflicting deflationary pressures” on the rest of the world, he told the Sri Lanka Economic Forum
“When I look at the financial markets, there I see a serious challenge, which reminds me of actually the crisis we had in 2008.”
The carnage in China seeped through to other Asian bourses. By the end of trading Thursday, Hong Kong had slumped more than three percent and Tokyo shed 2.2 percent.
– Key figures around 1215 GMT -London – FTSE 100: DOWN 2.7 percent at 5,911.9 points
Paris – CAC 40: DOWN 2.7 percent at 4,359
Frankfurt – DAX 30: DOWN 3.5 percent at 9,861.8
EURO STOXX 50: DOWN 2.9 percent at 3,048.4
Shanghai – composite: DOWN 7.0 percent at 3,125.00 (close)
Tokyo – Nikkei 225: DOWN 2.3 percent at 17,767.34 (close)
New York – Dow: DOWN 1.5 percent at 16,906.51 (close)
Euro/dollar: UP at $1.0858 from $1.0782 late Wednesday
Dollar/yen: DOWN at 117.47 yen from 118.49 yen