Share prices slide as 'perfect storm' threatens markets

Share screen of Tokyo's Nikkei stock exchange Image copyright European Photopress Agency

US shares ended largely flat on Thursday, after tracking losses on European and Asian stock markets.

Better-than-expected company earnings and a raft of positive economic data mitigated continuing concerns about global economic growth and the Ebola crisis.

Wall Street's Dow Jones, S&P 500 and Nasdaq indexes declined earlier.

The Dow Jones pared a 206 point decline to end down 24 points, or 0.15%.

The S&P 500 and the Nasdaq both ended slightly up for the day.

Markets welcomed economic data, as well as comments by a US Federal Reserve official, James Bullard, indicating that he believed the US central bank should re-evaluate its decision to end its extraordinary stimulus measures at the end of the month.

The Fed has been buying bonds in an effort to keep long-term interest rates low in a process known as quantitative easing, but that programme is set to end after Fed officials deemed the US economy was no longer in need of extraordinary support.

However, some analysts are hoping the Fed will re-think that decision when it meets later this month, from 28-29 October in Washington, DC.

Most observers, however, noted that Mr Bullard is not a member of the Fed's rate-setting committee and that a move to continue stimulus measures seemed unlikely.

Increased costs

Meanwhile, the borrowing costs for Greece and Italy rose, and investors looking for a haven pushed gold higher.

In Europe, London's FTSE 100 closed down 0.25% and the Cac 40 in Paris finished down 0.54%. Frankfurt's Dax index bucked the trend to edge up 0.13%.

On Wednesday, the FTSE saw its heaviest one-day fall in 16 months. The S&P is down about 8% from a record closing high on 18 September.

Analysts said that a raft of disappointing economic and corporate news had panicked investors.

Recent poor data from China, Germany and the US have heightened worries that the global economic recovery could go into reverse.

'Perfect storm'

Concerns about the spread of Ebola and its impact on emerging markets have added to worries. Companies linked to travel and tourism have seen their share prices fall in the past couple of weeks, offsetting hopes that the recent falls in the price of oil would lower their long-term fuel costs.

"It's beginning to feel a bit like a perfect storm," said Joe Rundle, head of trading at ETX Capital Markets.

"You have the US Federal Reserve stopping printing money this month, deflation all over the place, oil coming down [which is] causing more deflation.

"Everyone is panicking to a certain extent and everything is on the downside, there is real momentum here and there's a lot of money changing hands," he said.

Capital Spreads dealer Jonathan Sudaria said the global economic situation did not warrant such a heavy share sell-off. But he said: "Add a potentially disastrous [Ebola] virus into the mix and the result is what we have here - pandemonium in the market place."

Analysis: Andrew Walker, World Service economics correspondent

Is the eurozone crisis back? That would be putting it too strongly, but there are reasons to be uneasy.

In part, the turbulence in European markets is about a weakening global economic outlook. But then the eurozone is one of the principal causes of that.

There have also been some striking moves in eurozone bonds markets. There were sharp rises in the yields - in effect the interest rates - on government debts for the countries at the centre of the crisis.

For most of them there's no cause for panic. Those yields are still affordable - below 2% for ten year bonds in the case of Ireland. But not for Greece, whose government bond yields have climbed three percentage points in a month to a level above 8%.

Can Greece support itself without further financial help? The bond yields mean it will be very difficult.

Bond market moves

Financial shares were among some of the biggest fallers across Europe. Royal Bank of Scotland was down another 1.3% after falling heavily on Wednesday.

Meanwhile in France, Societe Generale and BNP Paribas fell 2.2% each amid worries about their exposure to a slowdown in southern European economies.

Greece's borrowing costs rose on Thursday on fears about the country's exit from the bailout it received during the financial crisis.

The yield on Greek 10-year bonds rose to 8.82% - its highest rate since January. Investors are worried that the country could struggle to borrow money once it is weaned off bailout money.

In Spain, Madrid's benchmark IBEX 35 index fell 1.7% after a bond issue failed to raise as much as the government hoped.

'Monetary morphine'

Meanwhile, gold traded at a one-month high, while the price of copper and some other metals fell to multi-month lows amid concern that demand would fall because of an economic slowdown.

Michael Hewson, chief market analyst at CMC Markets, said that one of the big concerns among investors was the ending of the Fed's monetary stimulus in the US.

"As the monetary morphine has started to wear off, the patient has come to realise that a lot of the old problems still remain, and yesterday's poor US data helped trigger a rather extreme reaction in not only the stock markets but bond markets too, as complacent investors rushed to hedge themselves.

"In essence, investors are asking the question with respect to the recent recovery about whether this is as good as it gets, which rather explains the slump in the oil price, bond yields and stock markets," Mr Hewson said.

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