Stocks dropped on both sides of the Atlantic as Italy’s borrowing costs soared, intensifying concern that efforts to contain the European Union’s debt crisis aren’t working.
Yields on Italian bonds soared to the highest level since the introduction of the euro, sending 10-year debt yields above 7 percent, putting the euro-zone’s third-largest economy into the danger zone.
US companies are feeling the pinch. General Motors shared plunged more than 7 percent after the car maker dropped its target for European results, citing “deteriorating economic conditions.”
In afternoon trading in New York, the Dow Jones Industrial Average shed 1.76 percent, the Standard & Poor's 500 Index fell 2.06 percent and the Nasdaq Composite Index dropped 2.24 percent.
“It’s just like a scary movie as it never ends,” Keith Wirtz, chief investment officer at Fifth Third Asset Management in Cincinnati, told Bloomberg News.
“The overarching problem is that most of the economies in Europe can’t sustain the size of their governments. We’re going to have this headache for a long time to come.”
In Europe, the Stoxx 600 Index ended the day with a 1.7 percent drop. The index had risen as much as 1 percent earlier in the session a day after Italy’s Prime Minister Silvio Berlusconi said he would resign.
But that optimism faded quickly.
"We just added another layer of uncertainty. The issue with Italy brings the region closer to a broader negative scenario and raises more concerns about a financial crisis," Bob Pavlik, chief market strategist at Banyan Partners in New York, told Reuters.
As Italy’s bond yields reached levels that required Ireland and Portugal to seek help from the European Union and the International Monetary Fund, the European Central Bank stepped in to buy Italian bonds.
"The ECB is buying aggressively," one trader told Reuters.
Meanwhile, LCH.Clearnet raised the margin the clearing house demands on Italian debt, making it more expensive to hold the beleaguered nation’s bonds.
German Chancellor Angela Merkel told a conference in Berlin that Europe's plight was now so "unpleasant" that deep structural reforms were needed quickly, warning the rest of the world would not wait. "That will mean more Europe, not less Europe," she said, Reuters reported.
Some expect next year will be another tough one for equity investors.
US and European equities will climb “modestly” by the end of 2012 amid uncertainty over global economic growth and Europe’s sovereign-debt crisis, according to ING Investment Management, Bloomberg reported.
Investors can expect benchmark indexes to finish unchanged “at best” in 2011, ING’s senior equity strategist Patrick Moonen told Bloomberg. “Our base-case scenario is about 5 to 6 percent growth for equities next year. 2012 will not be a smooth ride,” he said.
(BusinessDesk)
4 Comments
The big banks are falling....!
"By Steve Slater and Douwe Miedema
LONDON, Nov 9 (Reuters) - HSBC gave its starkest
warning to date that new regulations might force it to leave
Britain and said its U.S. bad debts had jumped as more
homeowners stopped payments on their mortgages.
Europe's biggest bank on Wednesday reported a 36 percent
fall in third quarter profits as the euro zone debt crisis hit
investment bank income, while strains in the U.S. economy saw
bad debts there jump by almost $1 billion, the first rise in two
years.
Extra British regulations could cost HSBC $2.5 billion a
year, which it said may be "too high" to stay, though it would
delay its decision to move its headquarters back to Hong Kong or
elsewhere until at least next year.
HSBC's London-listed shares fell 5.8 percent, as analysts
said underlying profits of $3 billion in the three months to the
end of September fell short of expectations and there was also
disappointment on rising costs and U.S. bad debts.
"Asian growth is insufficient to fill the hole left by
run-off of the Household disaster in the U.S., and (investment
bank) GBM profitability has fallen sharply," said Ian Gordon,
analyst at Evolution Securities. "The challenge of improving the
group's cost efficiency is tortuous," he added.
http://www.reuters.com/article/2011/11/09/hsbc-idUSL6E7M925Q20111109
..and here in
New Zealand – wrong economic course also !
…an avalanche of unemployment after Christmas is coming - but not only here in
New Zealand.
How much economic knowledge do our members of parliament have - telling us of 170’000 new jobs or are they just - under the "election houdimudi" lying to us - again ?
...and considering the world- wide problems - how much more billions do they spend, leading us, NZfamilies and our country into bankruptcy ? Do they really know what’s coming ?
It seems all becomes a little tooo big for small NZ.
'The overarching problem is that most of the economies in Europe can’t sustain the size of their governments'
And there is a strong, urgent lesson in that for New Zealand as it considers the upcoming election and the promises of various parties. The size of European governments is frankly due to their bloated cradle to the grave welfare systems. Debt funded welfare that political parties and individual politicians cynically exploit as election bribes to grasp power is the ultimate mug’s game for any nation that tries it. And look at where this European largesse has ended up? On the cusp of the Great Depression II.
What can we learn from that here in New Zealand given that we are in exactly the same position as the Europeans? Be very wary of any political party that promises more and more and more debt funded election-bribing welfare. And it doesn’t take a genius to figure out which party in New Zealand that one is, either in this election of historically. The Labour party. As far as I am concerned that is why they are toxic. I only hope that the Greens go from strength to strength and end up as the new opposition party on the left and Labour fades into oblivion where it belongs. At least the Greens have a sense of responsibility.
David – I think as the time progresses and we see increasingly more unemployment, welfare issues become even more important. I agree - without the implementation of strict regulations/ legislations money will be wasted. For the best results - I think that particular issue requires political parties working together and not against each other.
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