SECOND YORKSHIREMAN:
We were evicted from our 'ole in the ground; we 'ad to go and live in a lake.
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Government action fails to halt global sell-off
By Michael Hunter and Neil Dennis in London and Lindsay Whipp in Tokyo
Published: October 6 2008 08:35 | Last updated: October 6 2008 17:16
ft.com
Stocks suffered sharp falls on Monday as worries about the extent of the crisis in the financial sector deepened after finance ministers failed to reach a consensus on how to react.
On Wall Street, the Dow Jones Industrial Average fell 4.3 per cent to 9,884.9, a drop of 445 points that took it under 10,000 mark for the first time since October 2004. The S&P 500 fell 4.8 per cent to 1,046.9.
London’s FTSE 100 closed 7.9 per cent lower at 4,589.2, a loss of 391 points. The sell-off was the UK benchmark index’s third biggest one-day drop on record, its largest since Black Monday in 1987 and took it to levels last seen in October 2004.
Germany’s Xetra Dax 30 was 7.1 per cent weaker at 5,3,87.0 and the CAC 40 in Paris tumbled 9 per cent to 3,711.2. Overall, the FTSE Eurofirst 300 surrendered 7.4 per cent to 1,008.9, a loss of 80 points and its biggest loss since Black Monday in 1987.
Wall Street’s Vix index, which tracks volatility and is known as New York’s “gauge of fear”, rose 12 per cent to an record intraday high of 50.63.
In Asia, many indices closed at their lowest levels since December 2005 as worries about the extent of the damage done by the crisis intensified. The MSCI Asia-Pacific ex-Japan index was on track for its biggest daily decline since January 2008, down 5.3 per cent.
The Federal Reserve announced a series of steps to bolster liquidity in the credit and commercial paper markets, amid mounting pressure for more action following passage of the $700bn financial bailout last week. The Fed added that it and the US Treasury were “consulting with market participants on ways to provide additional support for term unsecured funding markets”.
One of London’s single biggest fallers was once more the UK’s biggest mortgage lender, HBOS, due to merge with fellow bank Lloyds TSB in a rescue deal put together during the crisis. HBOS fell 19.8 per cent to 160.8p and Lloyds lost 10.8 per cent to 268.3p. Royal Bank of Scotland fell 20.5 per cent to 167.8p.
“Another Monday, another banking crisis. Just when the market thinks it has found a base level, there’s another jolt to the system and we lose another 200 points off the FTSE 100. Black Mondays used to be a once-a-decade event – now they’re coming along more regularly than a London bus,” said Manoj Ladwa, senior trader at ETX Capital.
Anglo Irish Bank fell 21.6 per cent to €3.98 whilst Allied Irish Banks tumbled 15.8 per cent to €6.40. Bank of Ireland lost 18.6 per cent to €3.91.
The list of the biggest falling shares on the FTSE Eurofirst 300 read like a rundown of the continent’s biggest banks. Switzerland’s UBS fell 12.8 per cent to SFr20.90, Belgium’s Dexia was 21.2 per cent weaker at €6.74, and Commerzbank in Germany lost 17.7 per cent to €11.74. Deutsche Bank was 10.8 per cent lower at €47.30 and France’s SocGen fell 10.1 per cent to €61.70.
Shares in UniCredit of Italy fell 9 per cent to €2.81 before being suspended due to excessive volatility the day after it approved plans to boost capital by €6.6bn.
Shares in Iceland’s banks and financial institutions, including Kaupthing, Glitnir, Landsbanki, Exista, Spron and Straumur, were suspended as the sense of crisis surrounding the country intensified. The Icelandic krona fell 23 per cent against the euro, taking it to a record low.
Confusion over how governments planned to deal with the crisis mounted, after Germany offered its savers a guarantee covering all deposits over the weekend and an accord to inject a further €15bn into Hypo Real Estate took the cost of the mortgage lender’s rescue to €50bn.
Germany’s move to underwrite savers’ funds put extra pressure on other European governments to make similar guarantees after Ireland was the first to take the controversial step last week.
Sweden, Austria and Denmark on Monday all offered to guarantee deposits, following the move by Germany over the weekend and Ireland and Greece last week.
Alistair Darling, UK chancellor, is considering a taxpayer-funded recapitalisation of Britain’s banks, amid signs of cross-party and central bank support for an effective part-nationalisation of the sector.
The Spanish prime minister announced plans to hold an emergency meeting with the heads of the country’s banks as European governments scramble to contain the fall-out from the crisis.
”The minimum requirement for any solution to Europe’s financial crisis is unified leadership,” says Simon Derrick at Bank of New York Mellon. ”At the moment it is not there and investors are running for cover.”
Worries about the state of wholesale credit markets, with the reluctance of banks to lend to each other at the heart of the crisis, lingered even after the passage of the US government’s $700bn bail-out package.
“The Fed’s bail-out plan may have been passed on Friday but so far there’s been no real reaction in credit markets and because of this, the natural assumption is going to be that the measures won’t work, even if such a call is rather premature,“ said Matt Buckland at CMC Markets.
Oliver Stevens, head of dealing at IG Markets, said: “The question now seems to be how bad a recession we are in, not whether we are going into a recession. Fear and uncertainty are likely to continue to rule today and how low we go is anyone’s guess.”
Fears about the outlook for wider global economic growth took a toll on the heavily weighted mining sector, adding to the pressure on indices, especially in London. ENRC, the Kazakstani ferrochrome producer, became the biggest single faller on the FTSE 100. Its shares lost 18.9 per cent to 450½p. Compatriot Kazakhmys was not far behind, losing 18 per cent to 467p.
As risk aversion rose, the cost of insuring European corporate bonds from default climbed. The iTraxx Crossover index of mostly high-risk, junk-rated bonds widened 21 basis points to 631bp.
Currency trading also reflected a highly risk-averse tone, with the low-yielding safe haven of the Japanese yen rising rapidly. Those currencies most at risk were high-yielders, usually at play in the carry trade, a strategy where investors trade on interest rate differentials.
The New Zealand and Australian dollars, supported by some of the highest interest rates in the developed world, suffered the biggest sell-off. Against the yen, the NZ dollar fell 7.7 per cent to Y63.89, while the Aussie slid 10.5 per cent to Y72.53.
The pound fell 5.1 per cent to Y176.32 and was down 1.5 per cent against the dollar to $1.7411. The euro fell 4.6 per cent against the yen to Y136.92 and slipped 1.1 per cent against the dollar to $1.3516.
Gold prices soared as investors piled into the safe haven precious metals. In London, spot gold rose $40, or about 5 per cent, to $874.5 a troy ounce. In New York, gold futures for December hit $880 an ounce. Investors had been in the last two weeks buying unprecedented amounts of gold coins and small and medium-size bars, traders said.
Government bonds also offered havens from the turmoil. The price of the benchmark 10-year US Treasury rose as yields sank – down 12.4 basis points to 3.47 per cent. The yield on the 10-year UK gilt fell 16.8 basis points to 4.22 per cent.
Oil prices continued to fall on worries about the knock-on effects of the crisis on global growth. Nymex WTI fell $3.50 to $90.38 a barrel, having earlier fallen below $90 a barrel for the first time since February. |
