Markets Fall as Global Worries Multiply
LONDON — Stock markets continued to slide Friday in Europe following sharp sell-offs in Asia and on Wall Street, as pessimism about weak growth in the United States combined with longstanding worries about debt levels in the euro area.
Futures on the Standard & Poor’s 500 were also down, indicating another weak opening in New York.
Investors continued to pull funds away from stocks — including in emerging markets despite their solidly growing economies — and shifted instead into the perceived safety of assets like U.S. Treasury bonds, German bunds and precious metals.
Slowing manufacturing and service activity and the prospect of spending cuts to reduce debt loads and balance budgets are raising questions about where future growth will come from on both sides of the Atlantic.
Traders in Europe were awaiting an important jobs report from Washington later in the day for more clues on the health of the U.S. economy. A weak number, they said, had the potential to intensify the downward selling spiral seen this week.
Luc Van Heden, chief strategist at KBC Asset Management in Brussels, said the prospect of a “double dip” in the United States, where the economic recovery falters and turns into a second recession, was becoming even more of a concern than the sovereign debt crisis in Europe.
“We’ve known about the euro’s debt crisis for months,” he said. “Fears of a double dip in the U.S. are making the market very, very nervous at the moment.”
Mr. Van Heden said he thought it would take a really strong labor report — perhaps with the addition of 150,000 or so jobs in July — to durably lift investor sentiment. The market consensus is for an increase of 85,000; the figure for June was 18,000.
China, as the United States’ largest foreign creditor, is closely watching developments and the impact these may have on the value of China’s holdings.
On Friday, the Chinese foreign minister, Yang Jiechi, said he hoped the United States would take “responsible monetary policies” to support the global economy, and “take tangible measures to protect the safety of assets” held by foreign nations.
China has increased its holdings of euro bonds in recent years, Mr. Yang said in a written response to questions from the Polish press during a visit to that country. He added that China believed Europe could overcome its “temporary difficulties,” and would continue to support Europe and the euro.
Chancellor Angela Merkel of Germany and the French president Nicholas Sarkozy were interrupting their vacations Friday to hold a telephone conference on the euro zone debt crisis. Mr. Sarkozy’s office also confirmed that he would speak by telephone with Prime Minister José Luis Rodríguez Zapatero of Spain to discuss market turmoil. There were no immediate details about the discussion.
Stock markets in Europe were lower after steep losses at the end of the trading day on Thursday, but then recovered some lost ground.
The FTSE-100 in London was down about 2.4 percent and the DAX in Frankfurt 2 percent in midday, while the CAC40 in Paris and the Euro Stoxx 50 Index of euro-zone blue chips were each down around 0.5 percent. Yields on Italy and Spanish 10-year yields whipsawed, as in recent days, but remained around the stressed level of 6 percent.
The Nikkei 225 in Tokyo and the Kospi in Seoul both closed 3.7 percent lower. The Taiex in Taipei slumped 5.6 percent, and the Australian market
shed 4 percent. The Hang Seng in Hong Kong closed down 4.3 percent.
Neither the Japanese central bank’s efforts on Thursday to dampen the rise of the yen, nor the European Central Bank’s move to buy bonds of some European countries served to reassure the markets.
The E.C.B. bought bonds of some smaller euro area countries, but not those of Italy and Spain, whose mounting troubles have been a focus for investors. This was taken as a sign that the recent rescue packages by Europe could soon be overwhelmed by the huge debt burdens in those two countries.
“One assumes the E.C.B. doesn’t want to give governments a free pass and wants them to make appropriate structural reforms first,” analysts at Deutsche Bank said in a research note. “The longer they leave it to intervene aggressively, the more they may actually have to do as more and more investors flee the euro government bond arena.”
This week, Germany, the biggest economy in Europe, saw its short bond yields drop below the inflation rate for first time since reunification. This suggests that investors were willing to sacrifice a return on their investment to hold the least risky bonds in Europe.