US and European stocks were hammered on Monday, after Moody’s Investors Service issued a dire warning on French bonds, and Asian markets were dampened by pessimistic remarks made by a high-ranking Chinese official.
Gold fell $US46 an ounce, or 2.7% to $US1678 an ounce in the second big sell off in a week and US oil futures fell to under $US98 a barrel.
The Australian dollar again weakened, falling to around 98.35 cents overnight as investors headed for cash and the safety of US dollars, which in turn drove the greenback to a six week high against most major currencies.
Silver fell 4% yesterday to be down 11% in the past week, while copper lost 2.9% and is off around 5% in the same time.
Wall Street saw the Dow down by 2.1%, while the Standard & Poor’s 500 was and the Nasdaq were down by around 1.9%.
The losses were lower than mid session when the Dow was off by close to 3% and the S& P 500 was down 2.5%.
In Europe, Milan’s market in Italy lost more than 4.7% in a nasty sell off.
London’s FTSE ended the day down 2.6%, while the CAC 40 in Paris, Spain’s IBEX and the DAX in Frankfurt plunged more than 3.4%.
Asian share markets had earlier suffered smaller losses off the back of fears about European and US debt.
A gloomy warning about a lengthy global recession from a senior Chinese politician didn’t help sentiment.
And there are reports this morning that Chinese banking regulators are becoming worried about the impact of the tight credit rules for housing and the dangers they pose to the country’s banks.
That will add to the pessimism today in Asia and our market will open sharply lower with the futures contract looking at a 1.8%, or 76 point fall.
That was after the more modest 0.3% fall yesterday and Friday’s 1.9% plunge.
Hong Kong’s Hang Seng Index dropped 1.4% yesterday, while the Shanghai Composite index lost 0.1%.
South Korea’s Kospi 1%, while Japan’s Nikkei Stock Average ended down 0.3%.
The Nikkei’s close was the lowest since March 2009, and under the levels hit in the wake of the March 11 disasters this year.
Concerns that Europe’s debt woes will hamper global economic growth had seen Asian stocks sell off sharply on Friday.
That negative tone continued in Asia yesterday, though not at Friday’s level, but it certainly did in Europe and the US overnight Monday.
The change of government in Spain where Mariano Rajoy’s Popular Party routed the Socialists in national elections passed without impact on markets.
Moody’s said in its weekly credit note that rising French government borrowing costs and an uncertain economic outlook continue to pose a threat to the outlook for France’s AAA credit rating.
"Elevated borrowing costs persisting for an extended period would amplify the fiscal challenge the French government faces amid a deteriorating growth outlook, with negative credit implications," wrote Alexander Kockerbeck, senior credit officer, in the ratings firm’s Weekly Credit Outlook.
The yield on 10-year French government bonds rose 6 basis points to 3.51%, after the Moody’s statement which belted market confidence.
The French government rejected the Moody’s comments and warning, saying the country continued to borrow money in markets.
