Global Markets Plunge Between 6% and 12% in May

Bikram Pandey
31 May, 2012
New York City

Wall Street delivered one of the worst monthly performances in the last three years as global markets dropped, the euro declined and oil and gold fell. S&P 500 index declined 6.3%, Indexes in Europe fell more than 6% and Nikkei slumped 10.2%. Gold eased 6% and oil dropped 17.5% in the month.

[R]4:05 PM New York – Wall Street delivered one of the worst monthly performances in the last three years as global markets dropped, the euro declined and oil and gold fell. S&P 500 index declined 6.3%, Indexes in Europe fell more than 6%, Nikkei slumped 10.2%. Crude oil dropped 17.5% and gold dropped the most in three decades.[/R]

U.S. stocks traded sideways after the latest reports on jobs market indicated slow and uneven recovery. The first quarter GDP growth was revised lower to 1.9% and corporate profits in the period rose at the slowest pace in thirteen quarters.

For the month the S&P 500 index declined 6.3% and the index is still up 4.7% in the year at the end of May. The Nasdaq fell steeper 7% in the month and is still ahead 8% in the year so far.

In global markets most indexes suffered heavy losses in May. The CAC-40 index declined 6.3% and the DAX 30 index fell 7.3%.

The Nikkei index in Tokyo slumped 10.3%, the Sensex in Mumbai dropped 6.3% and Hang Seng index in Hong Kong plunged 11.7% and the ASX 200 index in Sydney dropped 6.3%. Bovespa index in Brazil plunged 12% in May.

Crude oil in New York fell 17.5% and gold eased 6% in May and registered its worst monthly decline in three decades.

In New York trading, market indexes gyrated after the latest opinion poll in Greece ahead of the June 17 election showed that pro-bailout New Democracy party is leading the Syriza party which favors renegotiating financial terms with international lenders.

The European indexes trimmed gains as leaders in the region stepped up pressure on political leaders and Germany to expedite the joint Europe fund.

ECB President Mario Draghi told a committee of the European Parliament in Brussels, “The configuration we had for ten years, which was considered sustainable, has been shown now to be unsustainable unless further steps are undertaken.”

In his stepped up criticism of political leaders in the region, he offered stern and direct response to the question, “Can the E.C.B. fill the vacuum left by the lack of euro area governance?” and said “the answer is no.”

The central bank governor was direct in his remarks and said that the central bank can make sure that the banks have enough money to meet daily needs but it cannot help banks to replenish depleted capital reserves.

Draghi also urged lawmakers to establish a deposit insurance fund at banks in the euro zone and avoid the impending bank runs and said large banks should be regulated directly by European authorities and not by the national authorities.

The European Commission’s leader Olli Rehn said that the euro zone needs stronger crisis fighting measures and tougher fiscal discipline.

Ireland is set to approve in a referendum a European budget discipline treaty to continue receiving EU financial aid and leaders stepped up pressure on Germany to agree on a joint euro fund ahead of the summit in late July.

Bank of Italy Governor Ignazio Visco added his voice to the growing chorus of pressure on Germany and said political inertia and poor economic choices had put the “the entire European edifice” at risk.

He added, in a keynote speech to the bank’s annual meeting, high level of Italian taxes are incompatible with strong economic growth and urged the government to sell state assets to lower government debt

Four banks in Greece also were able to access the European Central Bank funding after they were recapitalized by Greece. These banks are Alpha Bank, National Bank of Greece, EFG Eurobank and Piraeus Bank.

Draghi confirmed that Greek banks that were cut off from normal lines of credit were reinstated after Greek government recapitalized four largest banks with 18 billion euros or $22.5 billion in capital from the bailout funding that was received from the European Union.

Canada-based CGI agreed to acquire UK based Logica for £1.7 billion and Swiss Re agreed to sell its U.S. unit to Jackson National Life for $621 million.

Stocks in Tokyo closed down and finished May with a loss of 10.3%, the worst monthly decline in the last two years. The yen gained and bond yields dropped after euro zone stress drove investors to the safety of few select governments bonds. Nuclear utilities operators rose on the prospect of restart of power plants.

Australian markets finished the worst month in several years with a loss of 7.3% in the benchmark index on the rising stress in euro zone and lowered growth expectations in China and India. South Australia government debt rating was lowered. Echo Entertainment agreed to a shareholder meeting.

Commodities, Bonds and Currencies

The yields on 10-year U.S. bond decreased to multi-decade low of 1.57% and 30-year U.S. bond edged lower to 2.66%.

The U.S. dollar edged up to $1.237 to one euro and gained against the Japanese yen to 78.40 in New York trading.

Immediate delivery futures of Texas crude oil decreased $1.17 to $86.64 a barrel and Brent crude futures fell $1.44 to $102.05. Futures of natural gas increased 0.01 cents to $2.43 per mbtu and gasoline price decreased 3.3 cents to 282.50 cents a gallon.

In metals trading, copper decreased 2.5 cents to $3.36 per pound, gold decreased $2.10 to $1,563.70 per ounce and silver fell 18 cents to $27.76.