STOCK MARKETS tumbled yesterday as fears of a global recession saw Wall Street record its biggest losses since the start of the year, European markets hit five-year lows and the London FTSE experience its worst week in six years in the UK.
Having hit their lowest level in two years on Thursday, global equities extended their losses yesterday. Since the peak of October 2007, global markets have lost $1 trillion (€702 billion) in value.
The Irish market was no exception, and in fact outperformed its European peers on the downside. The Iseq fell by 3.7 per cent, dropping 162.46 points to fall back to 4,282.32, as financial stocks dragged down the index on the back of economic concerns and liquidity fears.
Overall, financial stocks fell by 5.4 per cent, with Allied Irish Bank performing the worst, falling by as much as 9 per cent at one stage, although it finished the day down 52 cent or 6.2 per cent at € 7.89. Construction stocks were also hit, with CRH faring the worst, as it fell back by € 1.01 or 5.5 per cent to close at € 17.21.
In the US, another day of poor economic data saw markets continue their downward trajectory. New figures indicated that the unemployment rate had spiked to 6.1 per cent in August - the highest rate in five years. On Wall Street, stocks looked likely to finish the week with the biggest losses since the start of the year, as the SP 500 fell by 1.4 per cent to 1,219.61 by 10am in New York.
And market sentiment continues to take a beating. Bill Gross, manager of the world's largest bond fund Pimco, warned of a "financial tsunami" yesterday if the US government does not step in to support the market, and said that the credit crunch is likely to get worse.
In Europe, the European Central Bank (ECB) offered no sop to banks struggling from the liquidity crisis when it announced plans to tighten its lending criteria, increasing its "haircut" from 2 to 12 per cent.
Moreover, president of the ECB Jean-Claude Trichet made it clear on Thursday that an interest rate cut was not on the bank's agenda, due to inflation fears.
Across Europe, stock markets fell sharply, with financial stocks suffering from the ECB's decisions. In Paris, the CAC-40 fell back by 2.5 per cent, while in Frankfurt the DAX closed down 2.6 per cent. For the week as a whole, they were 6.4 per cent and 4.6 per cent weaker respectively - their sharpest weekly falls in five years.
In the UK, the FTSE 100 dropped 121.4 points, or 2.3 per cent, to fall back to 5,240.7, bringing its losses over the last five sessions to 7 per cent, its sharpest weekly decline in six years, led by banks and commodity producers.
The dollar continued its rally against the euro yesterday, hitting an 11-month high against the currency early in the day.
However, it later fell back when the unemployment numbers were released.
The euro also weakened against the Japanese yen. The yen hit a one-year high against the currency and headed towards a 4.2 per cent weekly increase against it, the biggest since August 2007.
