Global markets in turmoil: Live blog

17.16 This ends Investment Europe’s markets blog after an eventful Friday for capital markets on the Continent and in America. We wish you a restful weekend ahead of what’s expected to be another busy day when markets reopen next week.

For further analysis of today’s events, and what it will mean for your investments, asset classes and fund buying plans, return to the Investment Europe website again on Monday 8 August.

17.02 Barclays Wealth’s chief investment officer Aaron S. Gurwitz has issued an update on the bank’s asset allocation strategy following a week of market turmoil.

The bank is positive on equities, “but much more cautiously so”, he says.

Meanwhile “the revision of recent economic history and the increasingly clouded outlook means central banks, especially the
Federal Reserve, are likely to keep short-term interest rates close to 0% for many, many months, quarters, and, possibly,
years to come”, he says.

Despite a slow growth environment, corporate earnings can still do well benefiting investors in those stocks, he adds.

16.52 European trading has now closed for the week. Today’s damage is: Germany’s Dax down 2.72%; France’s Cac 40 down 1.26%; Italy’s FTSE Italia All Share down 0.89%; Spain’s IBEX 35 was down 0.18%; FTSE 100 2.71% lower. Not even safe havens escaped the rout – gold’s afternoon fix at $1,658.75 was 1.2% down.

16.45 Goldman Sachs reportedly downgrades its outlook for US GDP, seeing a one in three risk of recession. An announcement of QE3 is expected at the Fed’s Federal Open Market Committee’s (FOMC) meeting next week.

16.43 Stock market statements in the UK show directors of Lloyds TSB bank bought shares heavily as the bank closed the day 5.8% lower, according to Sky.

16.42 Rumours circulate of a joint press conference to come featuring Italy’s prime minister Silvio Berlusconi and its finance minister Giulio Tremonti, following the close of trading in Italy.

16.38 William Hague, UK foreign secretary, is holding a special meeting with senior officials from the finance ministry, Downing Street and the Foreign Office on today’s events.

17.30 CET European stocks post their biggest weekly drop since November 2008 as the markets close for the weekend.

16.27 Pimco founder Bill Gross says: “The United States of Europe is key to future global growth. Fiscal and monetary integration, or else collapse.”

16.09: The US dollar hits new lows against the Swiss franc – one Greenback is worth 0.75776 Swiss francs.

16.08 David Coombs, manager of multi-asset portfolios and head of multi asset investments at Rathbone Unit Trust Management, will retain a high cash weighting (20%) in his absolute return products.

He benefited from using liquid ETFs today. “When it is so volatile, you want to be nimble in dealing, so by the time the deal is struck markets have not [moved] already. I have felt very negative about Europe since last year and been very defensive, waiting for equity markets to catch up bond markets.”

His timing earlier this year to switch from long-biased hedge managers into less correlated computer-driven multi-asset funds, called CTAs, might have proven prescient.

RUTM’s launching this week a higher risk fund of funds – aiming to beat by 2% a benchmark of MSCI World (70%), and MSCI Emerging Markets (30%) – on the other hand, might have a tricky start, but see good buying opportunities for the longer term clientele.

15.45 Rumour has it that ratings agency S&P will downgrade the US after markets shut this evening.

According to a post by an anonymous user on an online forum hosted by the Financial Times, Barclays says: “To be honest it would not come as a complete surprise as S&P always said that chance of a cut is 50:50. They also said they wanted the US government to cut expenditures by at least 4 trn; they have now cut it just shy of more than 2trn.

“So to be consistent and not loose their credibility S&P actually needs to cut the ratings”.

Separately and unsurprisingly, Bloomberg reports Merkel and Sarkozy’s planned phone call will also take place following market closures this evening.

15.19 US equities have given up their early gains of today, as fears over a second recession overcame optimism about job figures released before the opening bell. The Dow Jones Industrial Average dropped 0.32%, the S&P 500 was down 0.65% and the Nasdaq Composite fell 1.44%. The turnaround in US equities as the morning progresses may be leading Europe’s exchanges lower again. The Dax is 2.3% down, the Cac 40 dropped 0.66% and the FTSE 100 is now 2.35% below their respective closing point last night.

15.03 All the plans Switzerland’s National Bank enacted and announced on Wednesday to weaken its franc – from the 0.5% rate cut to increasing the physical stock of notes – may be undone by the turmoil, as the currency could strengthen to parity with the euro, says Deutsche Bank. Alan Ruskin, global head of G10 currency strategy, says the safe haven franc could “carry on to parity if European authorities cannot stabilize the Italian bond market soon”.

15.00 UBI Banca’s chief executive Victor Massiah reports there are no liquidity problems for Italian banks, and the interbank market is absolutely open, according to pseudonym trader “Tyler Durden”.

14.45 Anthony Bolton, manager of Fidelity’s China Special Situations investment trust, says: “Extreme equity market volatility as we are now experiencing should be seen as a time of opportunity rather than a time to become more defensive.

“At times of sharp volatility, all markets tend to be affected equally. Asian and emerging markets currently look oversold versus developed markets due to their much stronger economies and lower debt levels. This provides opportunities for investors with a greater risk appetite.”

Fidelity adds markets have shown recently that “US and Europe political leadership has been… woefully lacking, and we have seen two failed attempts so far to address the debt problems within the eurozone.

“These failed due to a lack of firm European political leadership, ensuring that each outcome is a flawed compromise based on the lowest common denominator of country self-interest.”

For Dominic Rossi, Fidelity’s global CIO for equities, savers needing income should look at equities: “For the last 20 years, investors have bought equity markets for capital growth, now is the time to buy equities for income.”

Andrew Wells Fidelity’s global CIO for fixed income, notes many corporates are now rated lower risk than governments. “In recent years, companies have been taking the steps that governments should have been taking and paying off their debt. We now have a good range of companies who can service their debts and with interest rates likely to stay lower for longer, this will be positive for total returns from corporate bonds.”

14.44 European central banks are buying up peripheral bonds, reports London & Capital Asset Management’s head of dealing Steve Collins.

14.41 As the crisis took a short breather while US markets opened, asset managers started looking beyond Bloomberg screens to taking advantage of turmoil.

JP Morgan Asset Management says do not flee to popular safe havens of Swiss franc or yen – they are both overbought and vulnerable to central bank intervention. “Rather, look to the areas we know offer long-term opportunities – emerging market debt and equities – and for income, high-yielding blue chips in developed markets look more attractive than government bonds, or cash.” But drip money in over 12 months, “as timing an exact entry point is almost impossible in such volatile conditions”.

14.32 US markets have opened strongly, on the back of better than expected jobless statistics for the economy. Dow Jones is up 150 points, the S&P has risen 13 points, or 1%, and the Nasdaq by 28 points, also equivalent to a 1% increase.

But details of the statistics are pouring out, with commentators saying the size of the labour market has shrunk, hence the drop in unemployment, rather than new jobs being created.

14.22 To put this latest iteration of the eurozone’s credit crisis in more perspective, the amount of value vaporized from global shares this week – over $2.5trn – is almost as great as the size of France’s entire economy. The MSCI All-Country World index has fallen 8.6% this week – well on the way, says Reuters, to its largest weekly drop since the height of the last financial crisis, in November 2008.

14.15 Market falls have caused UK pension deficits to increase by £10bn yesterday alone, wiping out “potentially any” gains for final salary schemes at FTSE 350 companies since October 2010, Aon Hewitt says in a note.

13.55 US stocks are up slightly in pre-market trading, a trader tells us. Given the pace at which markets are changing, will it open up or down?

13.48 How seriously Downing Street considers today’s turmoil is shown as the UK Foreign Secretary William Hague takes the step of reassuring that the government is “fully functioning” and “operating 24/7”, despite Prime Minister David Cameron and Chancellor George Osborne each taking holidays.

Cameron has spoken with Governor of the Bank of England, Sir Mervyn King, says the BBC. Hague says: “The government is fully functioning in response to this crisis and anything else that’s happening in the world. The crucial thing now is for eurozone governments to deliver on what they promised a few weeks ago. The Spanish and Italian governments must show they have credible plans to deal with their debts and to make their economies competitive.”

The UK already took a hit from the eurozone crisis early this morning when Royal Bank of Scotland, 84% publicly owned, reported a £733m provision for its exposure to Greek government bonds, as part of its £1.4bn post-tax loss for the first half of 2011.

13.43 Paris stocks have also jumped on the back of better than expected US unemployment data, rising by 2%, Sky News reports.

Meanwhile, US stock futures rallied by 1.4%, the BBC says.

13.35 US jobless statistics are in and better than expected, causing the FTSE 100 to soar by a staggering 100 points immediately after the news. The US rate of unemployment dropped to 9.1% in July, with 117,000 jobs added to the economy.

Earlier, Bloomberg reported American employers “probably failed to create enough jobs in July to reduce the jobless rate”. Expected outcomes from a poll it conducted before the data was released ranged from ‘no change’ to an increase of 150,000.

13.25 As if the eurozone periphery’s problems are not big enough, Germany’s Economy Ministry reports a decrease in German industrial production in June on falling construction and investment goods output. It was a 1.1% decline from May, worse than the 0.1% gain 26 market participants told Bloomberg they expected.

In addition, German business confidence fell further than expected in July, and investor confidence hit its lowest point since the credit crunch as the next crisis unfolds. Nevertheless, the Bundesbank expects Germany’s economy overall to expand by 3.1% this year and 1.8% in 2012.

13.15 Just over an hour before the US stock markets open, Europe’s have pared some of their losses from early this morning. The Dax is down 1.6% (it was 2.5% lower mid-morning); the Cac 40 is down a modest 0.05% (1.1% lower earlier); while the FTSE 100 in London has dropped 2.0% today, recovering slightly from 2.4% down at 1030 CET. The euro is down 0.33% against sterling. Unsurprisingly, gold is up 0.1% at $1,665.00 at the morning fix. Silver is also higher, by 1.4%.

13.10 Pseudonym trader and blogger “Tyler Durden” writes that bailed out US mortgage provider Fannie Mac reported a loss of “just” $2.9bn in Q2, and has asked US treasury secretary Tim Geithner for an additional £5.1bn in aid, bringing the total required so far to $103.8bn.

13.05 Olli Rehn, European Commissioner for Economic and Monetary Affairs, tells an audience in Brussels this afternoon: “The market unrest witnessed in the last few days is simply not justified on the grounds of economic fundamentals. It is not justified for Italy. It is not justified for Spain. Such dramatic changes in the markets are incomprehensible. It is not as if the fundamentals of the Italian or Spanish economies have changed overnight!”

He says both countries have “committed themselves to ambitious measures to reach fiscal consolidation and to put their economies back on track. And both countries are implementing those measures.”

12.50 Barclays Wealth confirms it will hold a confidence call with its clients this afternoon at 2.15pm GMT with an update on its current views given market developments during the past few days. It will issue a note to the press later in the day.

12.45 Take a look at European Commissioner Olli Rehn’s full speech to the press today. He says “markets have not reacted as we expected or hoped for to the measures agreed by euro-area Heads of State and Government on 21 July.”

12.25 UK foreign secretary William Hague is monitoring developments in financial markets “extremely closely”, reports the BBC.

12.19 Olli Rehn, European Commissioner for Economic and Monetary Affairs, tells journalists in Brussels that neither Spain nor Italy will need an emergenecy loan program.

12.18 Italy’s former prime minister Romano Prodi tells BBC Radio 4 it would be wrong to change Italy’s government now “during the storm”, despite his successor Silvio Berlusconi seeming unable to convince markets of his country’s strength as a borrower.

“You cannot change the government during the storm if you have no clear alternative.”

Prodi also blames part of the current crisis on a lack of clarity about who is actually in charge in Brussels: “We arrived at this point because it is unclear the hierarchy of power in Europe. This is the fact.”

11.40 Mark Burgess, chief investment officer at Threadneedle, says the firm is buying UK equities today, as they yield 1% more than 10-year gilts, “a valuation anomaly I have never seen before”.

It could all hardly come at a worse time: “Middle of the holiday season when markets are thin and many policy makers and market participants are away”. Burgess says current turmoil on Europe’s bond markets “is increasingly likely to precipitate recession”.

He predicts “a globally co-ordinated bout of quantitative easing” to allow policy makers to get a jump on fast-moving markets. “Getting to this decision, however, is going to be complicated and we may well need a catalyst in the form of a significant market crisis to make this happen.” The ‘good news’: “We may be seeing the beginnings of this crisis now.”

11.39 Reacting to the day’s events, UK Chancellor George Osborne will speak to Bank of England governor Mervyn King by the end of the day, the BBC reports.

11.30 Cyprus’ finance minister says his country does not require a bailout and urges other economies to avoid it, according to Reuters.

11.20 The German bund is making new day lows, reports Steve Collins at London & Capital Asset Management.

11.15 A website shows reaction by US stock brokers to yesterday’s events. Something tells us today’s images will show more heads in hands.

11.00 (GMT) ING Investment Management is the latest group to call for enlarging the European Financial Stability Facility, following comments to BBC Radio 4 this morning by European Union Economic and Monetary Commissioner Olli Rehn that, “to be effective, the European Financial Stability Facility needs to be credible and respected by the markets.”

Valentijn van Nieuwenhuijzen, head of ING’s strategy, tactical asset allocation group, says: “If things really become bad and countries like Italy and Spain as well as their banking systems come under attack there will simply be not enough funds in the kitty.

“It would have been much more preferable to give the EFSF so much fire power that it would convince markets that the EMU could withstand any speculative attack. If this had been done, it would have greatly reduced the chances of such an attack being launched in the first place. Markets are likely to test policymakers resolve again at some point and this may be sooner than some pundits might think.”

10.25 Beleaguered Italy’s growth forecast for this year is in, with 0.7% growth expected.

Its Q2 GDP figure is 0.3%, as expected. Ireland meanwhile has its BBB+ credit rating affirmed by S&P, reports the UK’s Channel 4 Economics Editor Faisal Islam.

10.00 Skandia Investment Group portfolio manager John Ventre thinks despite investors’ fears, now is the time to invest in European equities.

“There’s an old market adage that goes something like this: “if you catch a falling knife you end up in a bloody mess”.

“But when equity markets are as cheap as they are today, then investors have a margin of safety that’s a bit like wearing a sturdy pair of gloves. European equities are trading at 8x forward earnings and 4x forward cash-flow. Cheap by any measure, but bargain basement next to 10 year German bunds at 2.4%.”

The fund manager finishes by saying “it’s time for me to put my money at work”.

09.50 In an effort to calm market fears, partner Cheviot Asset Management David Miller says: “This is no re-run of 2008”. Events yesterday and today are not a repeat of the 2008 crisis, but the next stage of resolution of the same credit bubble, he says.

“While the headline market numbers are alarming, we should all take a deep breath and remember that the fundamentals are much better than 2008; banks are stronger, companies are generally in good shape, and traders are less heavily leveraged.”

“This is the time for cool heads,” he urges.

09.40 Guy de Blonay, manager of Jupiter’s Financial Opportunities fund calls for a four- or fivefold increase to the European Financial Stability Facility to reassure markets.

9.30 (GMT) Markets across Europe opened down this morning following global panic sparked yesterday afternoon by the ECB’s refusal to clarify whether it will purchase Italian and Spanish bonds, prompting fears over both economies’ solvency.

By 1030 CET the Dax was off 2.5%, the Cac 40 down 1.1% and Britain’s FTSE 100 was 2.4% lower. Follow our regular updates of the day’s events, with an emergency call between France’s President Nicholas Sarkozy, Germany’s Chancellor Angela Merkel and Spanish prime minister José Luis Rodríguez Zapatero scheduled, and all eyes set to turn to the performance of US stocks once that market opens.

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