Markets tumble as economic fears linger

While panic among investors has subsided, many remain worried that a global recession is on the way [Reuters]

European and US stock markets have again dropped sharply, a day after a US Federal Reserve annoucement on interest rates temporarily boosted markets.

The Dow Jones industrial average dropped 519.83 points or 4.62 per cent by closing on Wednesday, while the technology-heavy NASDAQ Composite Index fell 101.47 points or 4.09 per cent.

The FTSE 100 Index of leading British shares closed down 157.76 points, or 3.05 per cent, at 5007.16, while France’s CAC-40 finished down 173.20 points, a drop of 5.45 per cent, at 3002.99.

Tuesday’s announcement that the US Federal Reserve would keep interest rates near zero for two years had fuelled a short-lived boost in the global market, but failed to assuage worried investors.

“So far, panic has eased but fear remains,” explained Kit Juckes, an analyst at Societe Generale.

Earlier, Asian markets closed up strongly on Wednesday, following the gains made in the US and Europe on Tuesday. 

Japan’s Nikkei Stock Average was up 1.1 per cent, while South Korea’s Kospi Composite was one per cent higher. The Shanghai Composite Index was up 1.8 per cent, Hong Kong’s Hang Seng Index gained 3.2 per cent.

Reporting from the New York Stock Exchange, Al Jazeera’s Cath Turner described global markets as “uncertain” and “interconnected”.

“The US is already in trouble,” she said. “We know that there’s very minimal growth here and high unemployment. But Europe is very closely watching. Any small bit of news can set off the markets here. It’s very interconnected.”

World stock markets had been plummeting since the start of August after a downgrade of the US credit rating on Friday, and the ever-expanding eurozone debt crisis.

Many investors fear the US may be heading back into recession.

Eyes on China

Oil led a rebound among commodities on Wednesday as investors went bargain hunting for riskier assets.

“The Fed statement will give a boost to overall commodity markets as it is more like injecting confidence into the markets,” Ker Chung Yang, an analyst at Phillip Futures in Singapore, said.

“But there are uncertainties over US economic growth and China.”

Brent crude surged more than $3 to hit an intraday high of $105.67 a barrel, a day after settling at the lowest level since February.

“There are a lot of supply side issues to keep prices supported. The Libya crisis is going nowhere, and the key really is to see what is going to happen in China,” said Tony Nunan, a risk manager with Tokyo-based Mitsubishi Corp.

China’s implied oil demand in July rose 7.7 per cent from a year earlier, picking up from June, which marked the slowest growth in more than two years.

Gold nudged up 0.72 per cent to $1,755.99 an ounce after hitting a record of $1,778.29 in intraday trade on
Tuesday.