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Global Financial Markets Berserk Amid US Recession Panic

September 13, 2011 - Apprehension about the U.S. economy en route towards a recession just as the European debt crisis was getting more intense and the eurozone's economic indicators were sinking made world stock markets take a beating since last Monday.

America’s failure to add any new jobs in August triggered European and Asian stock markets to fall severely on.

Adding to the trouble was the news from Europe which was just as ominous. Wall Street, which was closed last Monday due to the Labor Day holiday, contended for disaster Tuesday after the yields in Greece, Italy, and Spain climbed suddenly against those of Germany, whose bonds are generally acknowledged as a safe haven.

For the fifth consecutive month retail sales in the 17-nation eurozone accelerated abruptly in July albeit a survey of the services sector last Monday disclosing a gradual decrease across the continent.

Contrasting with the manufacturing sector, the purchasing managers' index for the Eurozone exhibited minor growth. That will increase distress on the European Central Bank to maintain interest rates on hold when it convenes this week.

David Kotok, chairman and chief investment officer at Cumberland Advisers said, "There's so much uncertainty, so much fear, that investors don't know what to do. I don't remember the last time stocks were so cheap and nobody wanted them."

Investors were also taken aback by indications that the Italian government's promise to its austerity program is fluctuating. Prime Minister Silvio Berlusconi's government has done an about face on some deficit-cutting procedures, provoking EU officials to beseech Italy in adhering to its committed plan.

The difference in interest rates among the Greek and benchmark German 10-year bonds, known as the spread, ascended to new records last Monday, topping 17.3 percentage points. Profits on the Greek bonds exceeded 18 percent.

The designated chief of the European Central Bank, Mario Draghi, told a forum in Paris that amid the common currency's problems was a deficiency of synchronized fiscal policies and that the solution would be for more assimilation.

He discharged the idea of eurobonds which encompasses debt issued cooperatively by the eurozone countries. Some have claimed this would benefit weaker countries in borrowing more easily because they wouldn't have to pay such great interest rates. But unwavering countries like Germany would likely see their rates increase.

In its place, Draghi recommended that the eurozone ought to implement rules that would entail additional budget restraint.

Amongst concerns the banks would need to raise new capital, revived apprehensions over the eurozone debt crisis also added to the collapse in financial stocks. Societe Generale in Paris lost 8.6 percent, while Deutsche bank closed down 8.9 percent in Frankfurt.

America’s unemployment critical situation has prompted President Barack Obama to schedule a major speech Thursday night to propose steps to foment hiring. Meanwhile, traders returning from the U.S. holiday weekend will not have much to restore.

Job numbers for August were far less than economists' already halfhearted outlooks for 93,000 new U.S. jobs and revived anxieties that the U.S. comeback is not only decelerating but actually uncoiling. U.S. hiring numbers for June and July were also revised down, only building up the despair.

Daily Updates Archive

Jonathan Monroe

Senior Staff Writer - Gold-Bullion.org

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