Stock markets tumble on Thursday as investors took fright and flight at a gloomy warning about the world economic outlook from the Federal Reserve. Readers here know that the world economy is not destined to recover but that a new economy, characterized by fairness for all and known as NESARA, is waiting in the wings to be brought into operation as soon as the old one, which served the global elites primarily, falls. Two stories from the Washington Post and Manchester Guardian.
BERLIN — Markets worldwide tumbled Thursday as the global economic outlook appeared increasingly shaky, with investors fearing for the fate of European banks, Chinese growth and a dour new outlook on the U.S. economy from the Federal Reserve.
The Dow Jones industrial average opened nearly 3 percent down on Thursday, after the Federal Reserve said Wednesday that it sees “significant downside risks” to the economy. The Standard & Poor’s 500 index opened down more than 2 percent.
Stocks in Asia and Europe took a nosedive after the Federal Reserve released a gloomy assessment of the U.S. economy. Investors turned their backs on the Fed’s stimulus measures as well. (Sept. 22)
Also Thursday, the shipping company Federal Express, often viewed as a bellwether for the broader economy, projected weaker earnings over the months ahead.
Chinese stocks were down 2.8 percent as measured by the Shanghai composite index, reflecting new rumbles that the Chinese growth juggernaut could slow. Shares of two large Chinese real estate developers fell steeply after an analyst report on the risk of a default amid credit tightening-efforts by Chinese officials looking to fight inflation.
Global commodities were down across the board, as the weakening outlook for world economic growth implied less demand for everything from oil to agricultural products to precious metals. Crude oil was down more than 5 percent to around $81 a barrel Thursday, and even gold, which has soared to new highs on concerns about economic stability, was down around 4 percent to $1,740 an ounce.
Key European and Asian indexes were down more than 4 percent.
Germany’s DAX tumbled 4.31 percent in morning trading, to 5199.12. France’s CAC 40 dropped 4.81 percent, to 2794.50. Britain’s FTSE 100 was down 4.74 percent, and Hong Kong’s Hang Seng closed down 4.85 percent.
The DAX has lost more than 30 percent of its value since early May, when it hit its high for the year.
The Fed’s latest move aims to lower interest rates on mortgages and other long-term loans without making another major infusion of money into the economy — and brushes aside a crescendo of criticism from Republicans who have been making the Fed a campaign issue.
In deciding to put their foot back on the pedal, Fed officials rebuffed calls from Republican congressional leaders, in a letter sent Monday to Fed Chairman Ben S. Bernanke, that the central bank refrain from taking new steps to spur growth, fearing they could actually harm the economy. There was also opposition inside the Fed’s policy-making board, with three members dissenting from the decision.
The Fed acknowledged in announcing the move that its leaders see “significant downside risks” for the economy.
In Europe, fears over Greece’s fate also persisted, though the country appears likely to receive at least a temporary reprieve from default next month. New manufacturing orders in Germany declined at the fastest pace in more than two years, according to data released Thursday, raising new concerns that Europe’s biggest economy — and the main contributor to any euro area bailouts — may be running aground.
“All the forward-looking indicators are poor, suggesting no signs of bottoming out in the near future,” said a Nomura Global Economics research note.
Standard & Poor’s downgraded the credit ratings of seven Italian banks on Wednesday, saying they were at risk because of their loans to countries with troubled finances — primarily Greece and Italy. At the same time, the European Union’s crisis monitor said threats to sovereign finances had moved from small countries to large ones in the past several months.
“Tensions have spread across capital markets around the world,” the European Systemic Risk Board said in a statement after meeting on Wednesday.
Staff writer Neil Irwin reported from Washington.
US Federal Reserve strategy to calm financial markets causes investor fright as markets from London to Asia plunge
Julia Kollewe, guardian.co.uk, 22 September 2011
Stock markets tumbled on Thursday and the pound slumped to a one-year low against the US dollar as investors took fright at a gloomy warning about the world economic outlook from the US central bank.
The US Federal Reserve’s Operation Twist – its latest attempt to stimulate the American economy – failed to calm financial markets. The FTSE 100 index in London plunged 266 points to 5022, a 5% drop. Other European markets also suffered heavy losses.
In Asia, the Nikkei closed down 2.1%, Hong Kong’s Hang Seng tumbled 4.9% and the Jakarta stock market lost nearly 9%. On Wall Street, the Dow Jones index fell 3% in early trading, down 346 points at 10,778.
The sell-off came after the Fed unveiled a $400bn (£260bn) bond-buying plan on Wednesday to ward off a double-dip recession.
Investors rushed to the safety of the US dollar, driving the pound down by one and a half cents to $1.5328, the lowest level since September 2010. The gold price also fell, losing almost $50 an ounce to $1,729.
The City had been “left reeling” by the sharply negative tone adopted by the Fed on Wednesday night, when it warned that the US economic recovery was at risk, said Joshua Raymond, chief market strategist at City Index.
“The negative tone struck by the Fed in terms of the serious headwinds and downside risks facing the US economy sent a ripple through the markets,” said Raymond.
In Europe, the European Central Bank came under pressure to take action itself after a worsening in the services and manufacturing sectors sparked warnings that the economic recovery was definitely over. This was exacerbated by news that industrial orders in the eurozone slid for the second month in a row in July.
The Fed’s open markets committee said the economic outlook had deteriorated sharply, noting there were “significant downside risks” to its economic forecasts and indicating that a full recovery was years away. “Recent indicators point to continuing weakness in overall labour market conditions, and the unemployment rate remains elevated,” it said.
This drove the Dow Jones down 2.5% on Wednesday, while the Standard & Poor’s 500 index lost 3%. The dollar hit a seven-month high on Thursday as investors scrambled for safety.
Commodities tumbled on news that Chinese factory output had shrunk for a third month in September as flagging overseas demand put the brakes on new orders. Brent crude oil lost more than $2 to $107.50 a barrel, while US crude dropped $3 to $82.92 a barrel. Copper lost 3.3% on the London Metal Exchange, falling to a 10-month low of $8,028.75 a tonne.
“It is another blow after the Fed’s language about downside risks on the economy really hurt sentiment,” David Thurtell of Citigroup in Singapore told Reuters.
The Fed’s move came on same day that the Bank of England was also getting ready to pump more money into the British economy.
In another effort to help the ailing US housing market, the Fed chairman, Ben Bernanke, said that as the mortgage-backed securities it owns matured, it would reinvest the proceeds in buying new mortgage bonds. Economists called the measures a “double twist”.
Gary Jenkins, head of fixed income at Evolution Securities, said: “Twist and doubt? You have to hand it to the Fed. They have gone all retro on us and persuaded the market to call their latest attempt at intervention ‘Operation Twist’ rather than ‘QE 3′. The latter might imply that the first two attempts didn’t quite work out as hoped so far better to change the name.”
He added: “The basic idea is of course to stimulate economic growth by persuading investors into risk assets … the one thing that is clear is that Mr Bernanke is prepared to use all the weapons in his armoury in order to try and ensure that the US does not enter a long period of low growth, so Operation Twist may not be the last intervention unless it works. And of course the UK is about to follow suit.”
Paul Ashworth, chief US economist at Capital Economics, was not convinced Operation Twist would do much good. “The big question is whether this latest action will accomplish anything. We doubt it. Judging by the modest rally in 10-year treasury yields since the announcement, most of this was already priced in.
“More generally, the cost of borrowing simply isn’t the problem. Businesses don’t have the confidence to invest and half of all mortgage borrowers don’t have the home equity needed to refinance at lower rates.”