Rising inflation and slower growth in Europe combined with falling purchasing power for Americans knocked investor sentiment, sending stocks down sharply Friday on both sides of the Atlantic.
|||Rising inflation and slower growth in Europe combined with falling purchasing power for Americans knocked investor sentiment, sending stocks down sharply Friday on both sides of the Atlantic.
The euro dropped against the dollar as official data showed a spike in eurozone inflation to 3.0 percent in September, while the region's unemployment rate was steady at 10 percent in August.
London's FTSE 100 index of leading shares fell 2.09 percent to 5,088.35 points in afternoon trade after Wall Street opened, Frankfurt's DAX 30 dropped 3.26 percent to 5,455.53 points and in Paris the CAC 40 slid 1.92 percent to 2,969.47 points.
On Wall Street, the Dow Jones Industrial Average lost 1.31
percent to 11,007.46 points in the first minutes of trade. The S&P 500 dropped 1.57 percent to 1,142.21 points, and the tech-heavy Nasdaq fell 1.70 percent to 2,438.53 points.
The falls came on US Commerce Department data that pointed to weakening consumer power as incomes fell by 0.1 percent in August, the first decline in nearly two years, even as prices for goods picked up.
“It seems very unlikely that consumers can lead the economy to a faster recovery pace,” economists John Ryding and Conrad DeQuadros of RDQ Economics told clients in a briefing note.
In Asia, the main indices in Tokyo, Australia and South Korea closed flat. Hong Kong shed 2.32 percent with the Hang Seng Index playing catch-up after being shut on Thursday.
In foreign exchange deals on Friday, the euro dropped to $1.3442 from $1.3586 in New York late Thursday. The dollar was stable against the Japanese currency at 76.75 yen from 76.79 yen on Thursday.
Sharply rising inflation across the eurozone was unexpected, creating a dilemma for European Central Bank chief Jean-Claude Trichet who chairs his final policy meeting next week.
Trichet must now make a difficult call on whether to reduce interest rates to face a weak economy depite rising prices.
With firm hopes by investors that major central banks ease monetary policy, inflation creeping up in the eurozone is sure to disappoint as it probably makes a rate cut from the ECB less likely.
The much larger-than-expected jump in eurozone consumer inflation “reinforces suspicion that an ECB move as soon as next Thursday is unlikely,” said IHS Global Insight analyst Howard Archer.
Analysts were looking for an interest rate cut to counter slowing eurozone growth.
Meanwhile Greece's Prime Minister George Papandreou was due to hold talks with France's President Nicolas Sarkozy, one day after German deputies agreed to boost the bloc's bailout fund.
France's own banks are critically exposed to sovereign debt from Greece and other weak links in the eurozone chain Ä Italy, Spain and Portugal.
Fears on French and European banks have underscored major market falls throughout the third quarter.
“It's been one hell of a third quarter and the excitement of recent weeks is likely to continue over the next three months. We end the quarter no closer to a long-term solution to the European sovereign debt crisis ... and the global economic outlook is still a confusing picture,” said Kathleen Brooks, analyst at trading group Forex.com.
“The euro is looking weak ... and stocks, which have had their worst quarter since 2008, look fragile. Will there be another leg lower for risk, or will Germany save the eurozone and cause a huge relief rally?
“These are the questions we grapple with as we enter the last three months of the year,” she added. - Sapa-AFP
Source: http://www.iol.co.za/fears-knock-global-stocks-1.1148433
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