Saturday, August 6, 2011

$2.5 Trillion wiped off of world stockmarkets in just days... and Monday's debt downgrade repercussions haven't even reached us yet

The FTSE 100 slumped to its worst week since the depths of the financial crisis as fears of a new global recession wiped more than $2.5tn (£1.5tn) from the value of stock markets around the world.

The blue-chip index of Britain’s leading companies ended another volatile trading day down 146.15 points, or 2.7pc, at 5,246.99 – a 9.8pc tumble on the week. Across the Atlantic, the Dow Jones Industrial Average and the S&P 500 were poised for their steepest weekly declines in three years.

After heavy selling at the open in London, the FTSE and Wall Street rallied briefly after the latest US employment report for July showed the economy created 117,000 jobs, beating the 85,000 forecast by economists.

The turmoil of the previous four days had only intensified investors’ focus on a jobs report that was always likely to be the most important economic release of the week. “In the context of a normal recovery, it’s not a strong number,” said Eric Stein, a fund manager at Eaton Vance in Boston. “But in the context of the fear that’s been permeating the market it’s not a terrible number.”

A barrage of weak data from the US consumer, as well as America’s services and manufacturing sector, had raised the strongest fears in two years that the world’s biggest economy could slide back into recession. President Barack Obama said in Washington that the jobs number was a promising sign but more was needed to “create a self-sustaining cycle”. In London, George Osborne, the Chancellor, and Mervyn King, the Governor of the Bank of England, spoke yesterday and will keep monitoring the state of financial markets.

But on another roller-coaster day on trading floors, the fear that has had the whip hand all week resurfaced by early afternoon as investors drilled into the jobs report. The unemployment rate fell back to 9.1pc from 9.2pc in June largely because 193,000 people gave up looking for work; the average working week was unchanged at 34.3 hours; and the number of long-term unemployed didn’t budge from 6.2m. (more)