The Monday 'rebound' didn't come

Shares tumble on fears over Greek default

Speculation is growing that Greece is sliding towards the eurozone exit

 

the Guardian

Monday 12 September 2011 10.08 BST

World stock markets fell on Monday as the growing prospect of a Greek default sent banking shares tumbling across Europe.

The escalating financial crisis hit the French and German stock markets particularly hard, and pushed Italy's borrowing costs up sharply.

France's three biggest banks all plunged by more than 10%, after senior German politicians appeared to accept that Greece may be forced to quit the eurozone, sending the French CAC down 5.5%. Germany's DAX index fell more than 3% to its lowest level since July 2009.

In London, 144 points were wiped off the FTSE 100 at one stage, with the index of blue-chip stocks down 2.6% to 5071.

Speculation swept the City that Greece is sliding towards the eurozone exit, despite imposing a new property tax in an attempt to keep its fiscal plans on track.

"Eurozone officials have appeared to be taking a hardline stance on Greek in recent sessions suggesting that the country may not see the next tranche of its bailout funds without more austerity," said Jane Foley of Rabobank.

"The hardline position being taken against Greece has fed speculation that perhaps Germany is preparing for a Greek exit from the eurozone. Reports that Germany is increasingly focusing on ways to protect its banks in the event of a Greek default are circulating."

The prospect of Greece exiting the eurozone were fuelled by a senior member of Angela Merkel's German government openly discussing the prospect that Athens might not receive its next slice of bailout cash.

"The situation is very serious, more than some had thought," said Peter Altmaier. "Exclusion from the eurozone is not legally possible at the moment. That means the Greeks must decide themselves if they stay in the eurozone or if an exit is better for them."

Lehman collapse could be repeated

Amid the uncertainty, the euro fell to $1.36 against the dollar and hit a 10-year low against the Japanese yen. The major Asian stock markets all fell into the red, with the Nikkei falling 2.3% and Hong Kong's Hang Seng index losing 4.2%.

Traders were disheartened that last weekend's meeting of G7 finance ministers did not produce a detailed new plan to solve the European debt crisis. This helped to push the cost of insuring debt issued by Italy to a new all-time high. According to Markit, it now costs over €500,000 (£427,000) a year to insure €10m of Italian sovereign debt, a euro-era record.

Italy was also forced to pay a much higher interest rate when it auctioned €7.5bn worth of 12-month bonds. The average yield, or interest rate, on the debt hit 4.153%, up from 2.959% at a similar sale in August.

Moody's is rumoured to be planning to cut the French banking sector's credit rating, due to its exposure to Greek debt. In Paris, BNP Paribas's shares fell 12%, with Société Générale losing 11.7% and Credit Agricole down 11.1%. The heavy falls came despite SocGen pledging to sell €4bn of assets to strengthen its balance sheet.

"These fears are likely to manifest themselves in the form of further strains within the whole European banking system, as banks remain reluctant to lend to each other in a possible repeat of the 2008 Lehman crisis," warned Michael Hewson, market analyst at CMC Markets.

Joshua Raymond of City Index said that "the fresh uncertainty over a credit downgrade for French banks and rumours about part nationalisation is causing some violent swings to the downside and impacting broader European trade".

UK government debt remained a "safe haven" on Monday, with the yield – or interest rate – on 10-year sovereign debt dropping to 2.21%. Italian and Spanish yields rose slightly, to 5.47% and 5.27% respectivelyMonday 12 September 2011 10.08 BST

OECD slashes growth outlook for developed economies

Commodities prices tumble after report says all areas of the world are slowing down for the first time since the financial crisis

The Guardian

Monday 12 September 2011 10.08 BST


Commodity prices tumbled on Monday after the OECD warned the outlook across the world's major developed economies had deteriorated in July.

The Paris-based thinktank appeared to echo many analysts who believe there is a real prospect of a worldwide depression to rank alongside the 1930s.

The Organisation for Economic Co-operation and Development assessment, which looks at the prospects for growth over the next six months, said that for the first time since the banking crash all areas of the globe were slowing down.

Metals prices dipped while oil cartel Opec cut its forecast for global demand following publication of the report.

Copper fell to its lowest in almost a month, down $140 on the London Metal Exchange at $8,665. Tin and gold were also at month-lows.

The OECD said its leading indicator for the world economy fell for a fourth straight month.

Britain's outlook was even gloomier, with a sixth downgrade in as many months, adding to the OECD's gloomy assessment last week of the UK's prospects.

The G7 major industrialised nations – France, Germany, Italy, Japan, Britain and the United States – dropped to 102.0 from 102.5 in June in the OECD index, while individual readings for Brazil, India and China also slipped back.

"Compared to last month's assessment, Canada, France, Germany, Italy, the UK, Brazil, China and India are pointing more strongly to a slowdown in economic activity," the OECD said.

Data coming out of the US and Russia also pointed "clearly to a slowdown in economic activity".

G7 finance chiefs met at the end of last week in the French Mediterranean port of Marseille to discuss ways to tackle a debt crisis in the west that threatens to derail the world recovery, but were unable to agree a response.

The lack of clear consensus failed to calm anxious markets, prompting European stocks to fall to a 26-month low on Monday.

Howard Archer, chief economist at IHS Global Insight, said: "The indicator is now getting down perilously close to the 100 points level that indicates only flat activity. The further deterioration in the OECD leading indicator for the UK ties in the current softness of the British economy and the increasingly worrying outlook.

"In our recently completed September forecast, we project UK GDP growth at just 1% in 2011, improving modestly to 1.5% in 2012. Furthermore, we consider the risks to this forecast to be slanted very much to the downside."