Stocks: 'It's a war zone out there'
NEW YORK (CNNMoney) -- Wall Street got socked on Thursday as renewed concerns about the U.S. and global economies sent major indexes plunging and pushed gold to a new high and bond yields to a record low.
Stocks were hit with bad news on multiple fronts. Morgan Stanley put out a dismal forecast for global economic growth. A key reading on U.S. housing came in worse than expected. And a report showed a significant slowdown in the domestic manufacturing sector.
Investors rushed to move their money into safe U.S. government bonds -- and the yield on the benchmark 10-year Treasury briefly fell below 2%.
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Markets in meltdown amid new global recession fears
Frenzied selling wipes £62bn off value of FTSE and Dow Jones plummets in another tumultuous day for world economy
18 August, 2011
Financial markets on both sides of the Atlantic were convulsed by a fresh wave of selling amid fears that the world economy is sliding back towards recession.
The FTSE 100 closed down 239 points, or 4.5%, at 5092, wiping more than £62bn off its value. By late afternoon on Wall Street, the Dow Jones was down by 480 points, or 4.2%.
Growing disarray in the eurozone over the latest bailout for Greece, weak American manufacturing figures and a warning from Wall Street bank Morgan Stanley that the US and Europe are "hovering dangerously close to recession" all contributed to the mood of panic.
A closely watched gauge of the US manufacturing sector produced by the Philadelphia Federal Reserve plunged, underlining fears that the recovery has ground to a halt.
The yield on benchmark 10-year US Treasury bonds, which measures the cost of borrowing for the American government, slipped below 2%, as investors sought a haven from the storm. Gold, which has soared in value this year, hit another new record of $1,825 (£1,106) an ounce.
Sal Catrini, managing director for equities at Cantor Fitzgerald in New York, said: "The market is in meltdown mode; the data continues to stink. I don't know that there's much more to be said."
In Europe, investors were spooked by news that at least five eurozone countries had asked the Greek government to put up collateral against their share of the latest emergency bailout for Athens.
Austria, the Netherlands, Slovenia and Slovakia joined Finland in insisting that the Greeks put up assets as security, before they sign off on the €109bn (£95bn) emergency loan agreed in July. Their demands underline fears that eurozone countries have little confidence in the latest plans to shore up the single currency.
"It does suggest that northern European states have a certain lack of faith in Greece," said Simon Derrick, of the bank BNY Mellon.
Europe's banks also saw their shares fall sharply, despite the ban on short-selling imposed by several countries including France and Germany last week.
It was reported that the European Central Bank has made an emergency short-term loan of $500bn to one struggling financial firm; while a story in the Wall Street Journal suggested that European banks with US operations had been hauled in by the New York Federal Reserve and asked whether they had enough capital to survive the market chaos.
In the UK, shares in Royal Bank of Scotland and Barclays were down by 11%, and Lloyds by 9%.
The turmoil came as Andy Haldane, the Bank of England's executive director for financial stability, warned that the fears in financial markets have been exacerbated by the "psychological scarring" from the traumatic events of the past two years.
"Memories of financial disaster are now fresh, as after the Great Depression, causing an over-estimation of the probability of a repeat disaster," he said, in a paper published by the Bank. He called for "a more optimistic popular narrative" to help counter this ingrained pessimism.
Despite the US Federal Reserve chairman Ben Bernanke's pledge to keep interest rates at rock bottom until 2013, investors are increasingly nervous that central banks have run out of ammunition to rescue the ailing world economy.
"Every time the economy got the sniffles, we had the Federal Reserve standing by with tissues," said Jack Ablin, chief investment officer at Harris Private Bank. "This time around, I think the box is empty, and we're going to have to go through this alone."
and from Joe Wiesenthal of Business Insider..
MARKETS DEMOLISHED: Here's What You Need To Know
Aug. 18, 2011, 4:00 PM
The panic is back after taking a 5-day rest.
But first, the scoreboard
S&P 500: -53.02
And now, the top stories
• The story of today is a continuation of a global panic that's been in place for weeks now. On Monday, stocks completed the third day of the biggest three-day rally since March 2009. Then in the middle of this week, stocks basically did nothing. And now, it's back to panicking.
• Mostly it started in Europe once again, though even yesterday evening the weakness began. Some weak after-the-bell tech stock reports helped sent the futures drifting lower. Asia was weak, and then European markets went kaboom. A story about the Fed meeting with European banks over funding concerns that appeared last night caused a lot of worry. Other than that there wasn't even that much news, although the market's hunger for a solution to the perpetual crisis grows louder by the day. Perhaps the most ominous new fire in Europe is this situation where various countries who will be bailing out Greece are demanding collateral for their loans. It started with Finland, but if everyone does this, it's going to kill the whole thing.
• Obviously the broader European markets got demolished, with European banks taking the brunt of the pain.
• Things were already very ugly in the early going in the US, and then the data really brought the pain. CPI came in hot and initial claims came in somewhat weaker than expected. If Bernanke's hands weren't already tied, with respect to more easing, now he's even more in a corner.
• Then at 10:00 we got the KO punch from the Philly Fed report. The swing from +3.2 on the survey to -30.7 was epic and markets, which were already down hard, cratered further. Stocks never got off the mat after that.
• In the middle of the day, the longs tried to mount a charge, spurred on by news that HP was going to dump its hardware business, but although that was true, the rally went nowhere at all. Later in the day, the company confirmed plans kill its hardware biz -- while also pre-releasing mediocre earnings -- and there proved to be no advice for the stock, which fell 7%.
• Not surprisingly, given the panic Treasuries were a gigantic winner. At one point, yield on the 10-year fell below 2%, an area it never has seen before. Gold was a beast today, hitting new highs above $1820/oz.
• Regarding the beleaguered big cap US banks it looks like this: BAC -5.97%, GS -3.69%, JPM -4.4%, MS -5.11%
After taking a bit of a dip over the last week gold continues its ascent