The sell off accelerated yesterday in Asia, but slowed overnight.
Italian shares fell 3.7% in early trading overnight, but settled to end up 1.18%, but other European markets ended weaker, but not as weak as on Monday.
Gold again rose, hitting a new all time high in New York after the US Federal Reserve’s minutes revealed further stimulus for the economy was discussed.
Comex August rose $US13.10, or 0.9%, to a record high of $US1,562.30 an ounce. In after-market electronic trading, gold rose as high as $US1,574.30 an ounce.
Wall Street steadied, but another downgrade for Irish banks knocked the Dow down 49 points and US bond yields down 0.01 to 2.91%.
Ireland’s credit rating was cut to ‘junk’ status, which knocked confidence in late trading.
Despite the late drop, our market could end up opening flat instead of down with the share price index futures contract finishing up one point in overnight trading.
European stocks fell. London’s FTSE 100 shed 1%, the DAX in Germany retreated 0.8%, and France’s CAC 40 stumbled 8%.
Asian markets ended the session sharply lower. The Shanghai Composite dropped 1.7%, the Hang Seng in Hong Kong tumbled 3.1% and Japan’s Nikkei lost 1.4%. Australia’s ASX 200 index lost 1.8%, South Korea’s skidded 2%, and Taiwan’s Taiex declined 2%.
All nasty falls.
Marketwatch and other agencies reported that Merrill Lynch had warned that a further deterioration in Italy’s bond market could threaten the global economic recovery and lead to "tail risk scenarios for global financial markets."
"As the third largest bond market in the world, after Japan and the U.S., Italy could be systemic.
"Funding pressures in Italy, and even more so a sovereign crisis, would have implications, in our view, that would extend well beyond the euro zone," the analysts said.
They added that markets appear to be underestimating such risks with volatility low and the euro relatively strong.
"The analysts said unless euro zone leaders considerably strengthen the European Financial Stability Facility immediately and Italy resolves its political issues and adopts a more "credible and frontloaded fiscal consolidation plan," along with "ambitious structural reforms," the spike in Italy’s borrowing spreads over Germany could "snowball into a major crisis for the global economy," substantially knocking the euro," Merrill’s wrote in a note to clients.
As we suggested yesterday, the carbon tax fears quickly disappeared to be replaced again by an old favourite, concern about the euro and the eurozone.
Given that it took local investors a day to fully focus on what is happening in Europe, and in the US where the debt deadline and budget talks are going nowhere, yesterday’s fall represents something of a catch up.
The All Ords has lost 3.2% since Friday’s close, lopping more than $45 billion off the market’s value.
The All Ords fell 83 points or 1.8% to 4563.5, while the ASX 200 lost 1.9%, or 86.9 points to end at 4495.4.
The Australian dollar was caught in the sell-off and dropped more than a cent to last trade at $US1.0586. Since last Friday it has lost 2c.
Global equities took a big hit on Monday and Monday night over fears that the European debt crisis could spread to Italy, the region’s third largest economy.
Italian bank shares fell sharply.
And despite what happens overnight Tuesday, markets here and in Asia face another test today when Chinese industrial production and second quarter growth data will be released.
A fall to an annual rate of less than 9% is forecast: anything lower will make hearts beat faster.
The Chinese economy is slowing as the credit crunch hits home.
The banks all lost ground, with most recording lows not seen for a year or more.
But Macquarie Group was belted, losing more than 6% or $1.81 to end the day battered at $28.22.
That was the lowest since April 2009, just as the post GFC rebound was starting.
National Australia Bank, which has the biggest exposure to Europe of the big four banks, pulling sector lower, dropping 92c cents, or 3.7% to $23.88.
The CBA shed 91c or 1.8% to $48.64, the ANZ was off 48 or 2.2% at $21.08 and Westpac shed 45c or 2% to $21.44.
BHP Billiton and Rio Tinto both tumbled (See Macarthur story), not because of the carbon tax or Europe, but because of lingering concerns about that other big story at the moment, the health of the Chinese economy.
We will know later today just what the second quarter GDP figures are from China, but they are forecast to be less than 9% (annual).
News Corp shares fell 7% in New York on Monday (to be down around 13% so far this month).
In Australia yesterday they lost 73 cents, or 4.6%, to $15.197, while its non-voting shares also lost more than 4%.
Up to the close in Australia yesterday, News shares had lost around $7 billion in value since the start of this month.
They closed in New York at $US16.08, down a couple of cents and still looking weak after Rupert Murdoch attempted to halt the rot.
News Corp said it will use $US3.2 billion of the cash it had stored up for the acquisition of BSkyB to boost its share buy-back program from $US1.8 to $US5 billion, in Rupert Murdoch’s latest dramatic response to the hacking crisis which has cut 13% of the company’s market value s
