World Markets Plunge 3% on Greek Worries; Record Low in Euro

Bikram Pandey
09 Sep, 2011
New York City

World markets dropped sharply and the euro dropped to a record low against the yen and fell to a 6-month low against the dollar. U.S. and European indexes declined 3% and 2-year bond yields on Greek debt soared to 60%.

[R]4:00 PM New York – World markets dropped sharply and the euro dropped to a record low against the yen and fell to a 6-month low against the dollar. U.S. and European indexes declined 3% and 2-year bond yields on Greek debt soared to 60%.[/R]

World markets faced a sharp sell-off on the last day of the week and of the twenty five largest markets, 24 declined. The indexes in Europe and in the U.S. closed down more than 3%.

Finance ministers and central bankers of G7 nations are meeting in France for a two day meeting.

Government bond yields in the U.S., Germany and Holland declined to the record lows and yields on bonds of the troubled nations like Spain, Greece and Italy also fell as investors sought safety.

Europe is still struggling after two years to contain the problems of Greece and let other countries like Spain, Portugal and Italy cut their deficits to sustainable levels. The short-term bond yield of 56% on the Greek bonds suggests that restructuring of the debt is inevitable.

Today was the last day for the Greek bond holders to agree to the debt exchange program, the conditioned by the second bailout of 109 billion euros.

One of the toughest problems faced by the euro-zone is Greek debt and lack of visibility with the Greek economic outlook. Greece has suspended the interest and debt repayment and is still struggling to balance its budget.

What level of debt Greece can maintain is still unknown and how that problem will affect the other peripheral euro zone nations is troubling the market.

In addition, European banks hold large amount of sovereign debt of peripheral nations and that debt is falling in value. The banks may need to be recapitalized at the time when the bank stocks are already down 40% in less than a month and may fall further.

U.S. President Barack Obama proposed $447 billion jobs stimulus package that was quickly opposed by the Republican lawmakers.

Republican lawmakers have kept their focus on cutting taxes and lowering debt and have offered no plan to tackle 9.1% unemployment and as many as 8% more have either stopped looking for work or accepted part time work.

In corporate earnings news, ABM Industries third quarter net income soared 33% to $27.9 million. Caliper Life Sciences said PerkinElmer agreed to acquire for $600 million in cash. Kroger second quarter net earnings rose 1.3% to $280.8 million. Texas Instruments reported third-quarter revenue may fall.

European markets plunged more than 3% and banks dropped between 5% and 10%. The yields on German and Dutch bonds dropped to record low since the creation of the euro as investors worried the future of the euro.

The euro declined to a record low against the yen and fell to a six month low against the dollar at $1.377 in Frankfurt trading at close but declined further in New York.

European Central Bank Executive Board member Juergen Stark resigned because of the conflict over the central bank’s decision to buy sovereign bonds.

Nestle in talks to buy Russia based baby food maker. Volkswagen delayed its purchase of Porsche SE.

Stocks in Japan declined after GDP shrinkage estimate was revised to 2.1% from the previous read of 1.2% decline. The Nikkei index declined 0.6% and for the week lost 2.4%.

Fanuc and other machinery makers declined on the weak GDP data. Fast Retailing gained 1.8% on positive comments.

Stocks in Australia edged higher and the index in the week fell 1.1%. Resources linked companies closed up and the Australian dollar edged lower.

Commodities, Bonds and Currencies

The 10-year U.S. bond yield decreased to 1.92% and 30-year U.S. bond fell to 3.26%.

The U.S. dollar decreased at $1.3659 to one euro and closed lower against the Japanese yen to 77.45 yen.

Immediate delivery futures of Texas crude oil decreased $1.73 to $87.32 a barrel and futures of natural gas decreased 0.05 cents to $3.926 per mbtu and gasoline price fell 5.36 cents to 299.07 cents a gallon.

In metals trading, copper decreased 13.75 cents to $4.00 per pound, gold added $3.00 to $1,860.50 per ounce and silver decreased $0.80 to $41.73.