Europe and Asia saw panic selling of stocks on Friday, knocking the benchmark world equity index to a 5-year trough, while oil fell to a one-year low as fears grew policymakers are not making enough efforts to contain the financial crisis.
Government bonds in Japan and the euro zone -- usually safer assets which outperform in times of risk aversion -- fell as investors dashed to cash in any assets they have to gain access to capital.
Equity trading in Russia, Iceland, Romania, Ukraine and Indonesia has been halted while nearly half the stocks in Milan are suspended for excessive losses, just hours before finance chiefs from Group of Seven rich nations meet in Washington.
So far, measures from the United States, Britain and other countries to fight the worst financial crisis in 80 years -- even this week’s coordinated interest rate cuts -- have failed to calm credit and money markets and quell investor fears. “The stark reality is that markets have judged the coordinated interest rates cut not to have been enough, and we are now left wondering how best to get ourselves out of this downward spiral,” said Chris Hossain, senior sales manager at ODL Securities. “One gets the feeling that this market is now strictly confined to the brave.” MSCI world equity index fell more than 4% at one point to a five-year low, losing a fifth of its value this month alone. The index has lost 43% since January, on track for its worst weekly, monthly and yearly performance in 20 years.
Japanese stocks fell nearly 10% for their biggest one-day percentage loss since 1987. Yamato Life Insurance, an unlisted midsized insurer, became the first Japanese financial institution to collapse in this crisis. On Wall street, stocks tumbled for a seventh straight session on Thursday.
In the European credit market, sentiment deteriorated sharply with spreads measured by the Crossover index hitting a fresh high of 720 basis points. “The market is catching up with the grim reality that this isn’t going to be a mild downturn. The mass leverage that people have built up over the past decade or more is catching up, and it's going to be a long and painful process,” said James Hamilton, bank analyst at Numis.
Emerging stocks fell 4.2% to a fresh three-year low while emerging market spreads widened 10 basis points to trade 556 basis points over US Treasuries. The December bund future rose 20 ticks as investors rushed to buy safer government bonds, with yields in other euro zone countries such as Greece moving as much as 100 basis points above German counterparts -- considered most liquid.
The yen, which benefits from a surge in risk aversion, rose 0.4% against the dollar to ¥99.76 while sterling hit a five-year low of $1.6802 at one point. The dollar was little changed against a basket of major currencies. (Reuters)