FOLOWING last Friday’s booting of the USA off its top-tier AAA credit rating, there were big falls in the world’s money markets yesterday.
The technology-rich Nasdaq Index fell more than 3 per cent, United States Steel Corp fell 6.2 per cent to $31.18, Citigroup Inc dropped 5 per cent to $31.83 and the Dow Jones dropped 215.55 points, or 1.88 per cent, to 11,229.06.
The Volatility Index was at a 52 week high yesterday, as David Beers, head of the Standard and Poor’s warned there is at least a one-in-three chance that the USA AA+ rating won’t last.
Stock markets in Asia began yesterday’s global collapse, with the main stock index falling almost 4 per cent in South Korea and more than 2 per cent in Japan, then when European markets opened later they fell too, with Germany down 3 per cent and France down 2.5 per cent.
In London the FTSE 100 lost more than 3 per cent, while Paris’s Cac 40 and Frankfurt’s Dax both slumped more than 4 per cent.
Gold rose above $1,700 per ounce for the first time ever yesterday.
The euro was sharply lower across the board as, for the first time, the ECB purchased the sovereign bonds of Italy and Spain, the euro zone’s third and fourth largest economies.
Despite fears that the dollar would fall sharply, the euro fell more than two cents on the day to change hands around $1.4170, while the yen was boosted, with the euro falling by nearly 2 per cent against the Japanese currency.
The Swiss franc was also sent soaring to a record high against the dollar at CHF0.7680.
Seeking to avert panic spreading across financial markets, the finance ministers and central bankers of the Group of 20 industrial and developing nations issued a joint statement yesterday, saying they were committed to taking all necessary measures to support financial stability.
‘We will remain in close contact throughout the coming weeks and cooperate as appropriate, ready to take action to ensure financial stability and liquidity in financial markets,’ they said.
US President Obama was also due to make a live statement last night to try to calm the markets.
Crude oil, natural gas and other commodities fell, with oil down $2.84 at $84.04 per barrel.
After the ECB announced its intention to buy Italian and Spanish bonds in an attempt to avert a default, the head of Italy’s biggest trade union federation demanded to know what the ECB had demanded from the government in return for buying Italian bonds.
Susanna Camusso, head of the CGIL union federation, demanded that prime minister Berlusconi should declare ‘what conditions were imposed by the ECB for buying Italian bonds’.
Camusso demanded that the ECB’s communication with the government be published in full ‘without omissions so that everyone can judge at what point we are with the crisis without the veil of government lies’.
The CGIL declared that it will not accept a deal in which the bulk of budget savings come from welfare cuts and demanded a special wealth tax to balance such measures.
Anxiety continues to grow in the world financial markets as uncertainty about their future dominates.
