News24

Market fears of a 'black Monday'

2011-08-07 21:45

Brussels - World leaders and finance chiefs raced on Sunday to head off spiralling tension triggered by eurozone debt contagion and a US rating downgrade as the clock ticked on the opening of the markets on Monday.

Officials from the Group of 20 and Group of 7 economies held emergency conference calls on  Sunday as leaders of major powers conferred by phone and European Central Bank (ECB) governors readied for talks before the opening of the New Zealand market, the first to trade in Asia.

No details emerged from the talks, with officials in European doggedly tight-lipped.

In a sign of a possible storm ahead, the Israeli market fell 7% on Sunday and Gulf markets tumbled on opening, but later trimmed some losses as investors reacted to Standard & Poor's unprecedented cut in the the US rating to AA+ from the top notch triple-A.

"Until the stock markets open [on Monday] the extent of earthquake caused by the downgrade of the US debt rating will not be known," said Spain's El Pais daily newspaper. "But everything points to a black Monday which may intensify the attacks on the euro."

News of the historic US ratings downgrade hit on Friday after the close of markets, battered last week by their worst falls since 2008.

Global meltdown

Fears of a global meltdown, which some analysts see as potentially worse than the 2008 collapse, sent vacationing leaders scrambling in a flurry of phone calls from London to Paris to Washington to stem the tide.

Officials from G7 nations - Britain, Canada, France, Germany, Italy, Japan and the United States - confirmed the need for ministerial talks on market stability, said Japan's Kyodo News agency, quoting unnamed sources.

The G20 teleconference involved deputy finance ministers, South Korean Deputy Finance Minister Choi Jong-Ku told Dow Jones Newswires without elaborating.

In Rome, Dow Jones said ECB governors would hold a video conference at around 16:00 GMT. An ECB spokesperson refused to comment.

Officials have been especially tight-lipped on ECB moves as markets watch to see whether it will step in and buy back some of the bonds piled up by Italy, the latest potential victim of the euro crisis which also threatens Spain.

The ECB "does not like buying bonds as it does not want to fund governments - but things are different in a liquidity crisis where there is a risk of systemic events", said Goldman Sachs economist Dirck Schumacher.

Italy

Italy, the eurozone's third largest economy, last week saw its borrowing costs hit record highs due to a loss of confidence over its debt mountain - equal to 120% of its GDP - as well as poor growth prospects and political tensions.

Trying to head off the pressure, Italian Prime Minister Silvio Berlusconi pledged lawmakers would return early to rush through even more austerity measures, including a constitutional amendment to force governments to keep balanced budgets.

EU economic affairs commissioner Olli Rehn praised the move, saying: "It is important that Italy tries to restore confidence to the markets."

Spain too announced new reforms to bring in an additional €4.9bn and help rein in the public deficit.

But Finance Minister Elena Salgado hit out again at the ECB, demanding it "do its job in supporting stability in the debt markets".

Some analysts have blamed ECB chief Jean-Claude Trichet's failure to clearly back Spanish and Italian government bonds last week for contributing to the massive turmoil on the stock and debt markets.

ECB intervention would reassure sceptical markets, unconvinced that "politicians have a strategy for dealing with Italy and Spain", said Will Hedden, a trader at IG Index.

S&P

After the S&P move topped out a week in which markets lost untold billions, holidaying leaders of Britain and France, Prime Minister David Cameron and President Nicolas Sarkozy, discussed the crisis at length by phone.

"Both agreed the importance of working together," a Downing Street spokesperson said.

The latest twists come only two weeks after a special eurozone summit reached an agreement meant to tame the spreading crisis, which EU commission head Jose Manual Barroso said has now moved beyond the euro periphery.

Rushing back to Brussels, the EU's Rehn offered to propose new, common "Euro-bonds" next month, hoping to backstop the weaker eurozone countries and so ease the pressure when they have to raise fresh funds to cover their debt.

Until now taboo, such bonds would allow eurozone governments to raise funds needed to run their countries based on guarantees from the entire 17-country bloc of 332 million people.

The EU's executive commission, the ECB and the European Financial Stability Facility (EFSF) are "working night and day to put flesh on the bones" of an agreement struck at the July 21 summit, Rehn said.

The summit agreed to flesh out a crisis rescue pot - the €440bn - so it could step in to help troubled banks and buy back government bonds on markets, a first step to building something akin to a European version of the International Monetary Fund.

"Such a comprehensive, detailed and technically complex agreement requires time to implement," Rehn said on Friday.

"It would have been fantastic if the agreement had been fully operational on 22 July," Rehn said. "But this was of course impossible".

If national parliaments ratify the changes as swiftly as hoped, the euro's new financial firepower should be in place in September.

Common currency

But parliaments in some northern nations, where taxpayers are loathe to pay bills for the likes of Greece, may balk at moves to ramp up its size or scope.

"The European reaction has been neither quick nor concerted and confirms the institutional weaknesses behind the common currency," El Pais said.

"It is hoped that EU leaders now show greater diligence and determination ... the problem is that with each passing day, the room for manoeuvre is being reduced."

Comments
  • OZNOB - 2011-08-07 21:01

    SOUND LIKE THE START OF THE WALL STREET CRASH IN 1929 ALL OVER AGAIN AND THAT WAS QUITE SERIOUS

      za101 - 2011-08-07 21:53

      SaudiArabia, Egypt and Dubai stock markets fell over 5% Israel stock market fell 7%

  • william.botha - 2011-08-07 21:04

    Would love to see a lynch mob go after Greenspan and his buddies.

      Win14 - 2011-08-07 21:14

      No William, come on. This is like blaming God or JC for all our f*ck-ups. It is you and me and all the people who have been living beyond their means for decades now. Someone should prohibit credit cards and overdrafts and over-the-top mortgages/bonds ... perhaps then the Western world will come to their realistic senses again. The Greenspans are just going with the flow and try to keep it flowing without obstacles. If they would go against the flow, we'd long ago have annihilated them.

      william.botha - 2011-08-07 21:34

      Win14, I do not live beyond my means. But what gets me is the zombie state of consumers. I have been dead set against this madness ever since I understood economics. I run a profitable business in manufacturing, hence I add real value to the supply chain. Mortgages and credit can be beneficial and in fact it is, but it has been misused by corporates. To give you an example, do you know any independent grocers? They have all been swallowed up, bullied out of existence, or strangled via suppliers. The amount of collusion in today's business is staggering. Essential services has craftily become the trade of the day. Every time you go shopping you pay dividends to investors whose main concern is the bottom line. I call that reckless capitalism. They say capitalism killed communism, now capitalism is killing democracy. I group the world economy in two, the one is based on financial services, the other on infrastructure. Infrastructure includes the real economy where civil services, agriculture, manufacturing, technology and medical services reside. Financial services include the money markets, banks, real estate and insurance companies. You could compare the two to farmers and corporations. The corporations buy the produce and distribute it while the farmers plant and cultivate the produce. What has happened is that everybody now wants to be corporates, and nobody wants to farm anymore. The financial services are bleeding the world economy to the point of death.

      william.botha - 2011-08-07 21:46

      continued - Also consider the QE scenarios. There is a good description here http://en.wikipedia.org/wiki/Quantitative_easing#QE_by_the_Federal_Reserve_in_the_United_States Ever since the dollar (a currency) has become the preferred security for the world, the game of monopoly started with an endless supply of money. Every time the US runs out of money, they print more. There is nothing tangible tied to the dollar. There used to be but that soon ran dry. Years ago when the reserve bank issued currency, it had to equal amount of gold in reserve, hence printed on the notes was "I promise to pay the bearer" by the governor of the reserve bank. Go look at your bank notes now and see if you can find that inscription on there. The derivative markets phony value is 12 times the size of the real global economy. That is alarming and causes shortfall all the time. Banks are bankrupt and survive only by Reserve bank credit. When you step into the bank and deposit a million rand, you think that it is a positive balance in your account, but in reality, the minute you deposit that money, it is gone. If everybody in SA goes to the bank tomorrow and just draw 10% of the balance in their accounts, the banks will default on payment. Scary stuff, but this is the thin ice our world is skating on.

      nodrog - 2011-08-07 23:32

      Finally someone with there eyes open! Thanks William! http://www.youtube.com/watch?v=_dmPchuXIXQ

      Johan van Zyl - 2011-08-08 07:50

      I agree. Alan Greenspan and Timothy Geathner (or whatever his surname is) should be in jail for account fraud, along with most of the "masters of the universe" on Wall Street. Some of those derivatives accrueded inflated "face" value of over 200:1! The main mistep by the USA was the recall of the Glass-Stegal act (or whatever it was called).

      Michael - 2011-08-08 09:04

      Agree, you can find out how it all were orchestrated by watching a fantastic documentary called Inside Job previewed at Durban International Film Festival ... here is more info www.sonyclassics.com/insidejob/

      DandyLion - 2011-08-08 09:05

      William, I see you're a man with insight. I agree, people live beyond their means and are forever begging banks for more money and creditors for extra time. America has also exported their ideas of bigger, more expensive cars, clothes, cellphones, etc. Designer living has become a way of life, as opposed to saving. I save almost 25% of my earnings but teh interest I earn on it is minimal. So at the end of the day, i get punished for living within my means?

  • claudio.celestino - 2011-08-07 21:10

    They have turned the markets into a Casino and now the world is about to pay the ultimate price. :-(

  • Andrew - 2011-08-07 21:14

    Into great unknown......This coming week will be interesting.

  • Kurt - 2011-08-07 21:18

    Everyone knew this was coming, why did the USA and Europe just allow this crisis to form? Well , we have enough chickens if hunger comes..

  • veld66 - 2011-08-07 21:23

    Welcome to the new world order free market capitalism has failed & its high time that everyone becomes equal ....Very interesting there are now economic protests in Israel,,, what happened to the money they hide under their concrete basements????

      Wolraad Woltemade - 2011-08-07 22:04

      Your first sentence show some character, but it was swallowed by the "everybody equal thing..." That can not, and will never happen. Even if it does, it will be very short lived, something like 7 years max. Everybody equal will only create a system where the hard worker carries the "owe me's mentalities" - I dread this mindset in the world, but more so in SA.

      grant9 - 2011-08-08 03:08

      Everybody was supposed to have become equal in 1994. What happened? The rich got richer and the poor got poorer. The ANC elite got mega rich. "money they hide under their concrete basements" aah so thats why Malema is building an underground basement!

  • Win14 - 2011-08-07 21:33

    Sorry, I have to say it again: it's not the Greenspans and Bushes and Obamas and so forth ... it really and truly is the people, i.e. Us, who vote for them and keep them in power, why? Because they don't stop us from taking ever more credit and allowances of all kinds. WE are responsible for all the gemors, not them. They just do what we want. And if it derails, we blame THEM. They are also just human and try their best, and you know very well where the best intentions lead to. It's not as if "they" wanted things to derail. They get richer by the day anyway, whatever happens. But they also want to be loved by us! So they really try, believe me. So would you if you were in charge.

      Bart Zimzon - 2011-08-07 21:40

      Win14, I agree to a good extent with what you write. But take the "bad credit cards" of "bad housing loans".................... Those where all put in "vehicles" to sell to international banks and they sold to gullible investors that wanted to make quick money...................But the Credit Agencies approved those bad vehicles and made them AAA. The credit agencies are the real culprits of this mess we are in. If they didn't gave AAA ratings, the banks couldn't sell them to international banks and they couldn't sell them to their investors. Very simply put but those agencies are the real culprits...........Another leg is of course the brutal spending of the governments worldwide. No good housefathers, but hey, most of them were getting paid fat bonuses because they did a good job.....Solution: come down to earth with spending as too many people had too much for too long.

  • realist - 2011-08-07 21:40

    This gloom and doom has been foretold eons ago...and even prophesied i suspect...it's all appears to be part of the big plan which will see things get worse before they get better. Capitalism has eaten itself from within through greed and materialism leaving the Chinese with surplus $trillions and huge gold reserves. They are owned the most and therefor own most. At what cost will they save the West should they offer to do so when all else fails...and it will. Makes one think.

      Peg-Leg-Sven - 2011-08-08 07:34

      @Realist, the Chinese have incredible Dollar reserves, but not great Gold reserves, even South Africa has greater gold reserves than China. That is the main reason for the rise in Gold's value over the past 2 years.

      John Jameson - 2011-08-08 08:49

      Get real, realist - drop the fire and brimstone voodoo act. The prosaic truth is that those people who used to own capital have squandered it all and have borrowed even more, while those people who previously had little have been working hard and saving to build up capital. Now the West is in shock because its' the end of the month and their accounts are due while they've been wasting their bucks on parties... and suddenly the world is at an end? Really now???!!! Capitalism has never been stronger. The rules of Monopoly don't change just because someone else is winning. It' just that the prodigal sons of the West have squandered their inheritances thinking that daddy would bail them out with a fattened calf, and instead it's the hardworking sons of China who stayed home tending the father's flocks who now own the farm and the calf with interest on top as gravy. It's The Grim Repo Man that cometh... not the Grim Reaper.

  • gatvol4corru - 2011-08-07 21:40

    Welcome to SA Union fever! Between Eskom and strikes,government's corruption and teen-twit-malema,we know black mondays well

  • Bart Zimzon - 2011-08-07 21:43

    And now of course those Credit Agencies come and play "holier then holier" and tell the world what they are worth...........Getting rid of those Credit Agencies should be the first step to recovery.

      Peter - 2011-08-07 21:51

      Yea, right. Shoot the messengers sounds like a great to solution to a world-wide economic crisis!

      John Wilderness - 2011-08-08 02:11

      @Bart - Yeah destroy the compass and run around in circles.

  • Jacques - 2011-08-07 22:17

    Biblical theory is that mankind is not made to have debt... Yet we love it, and always fall down when it gets too much. I think the big problem is the stock markets, by it's nature. If you don't work you should not eat. So why is it that so many has made billions on the markets by trading stocks but has not worked for it. One funny is that stocks are gamble, and reality is if you loose money on stocks means that someone else is sitting with that money. Or does money these days disappear magically?

      gmain - 2011-08-07 22:43

      Jacques, business needs money to prosper. That, and that alone, is the primary purpose of the stock market. It gives every man, rich or poor, a chance to own a part of something, which can grow. Do you suggest we keep our savings under our beds? The people who make money purely off the stock market are probable one of the most stressed people on the planet (besides our Police Officers of course). Punishment fits the crime. But don;t know the stock market. It is vital for any economy to grow.

  • Bart Zimzon - 2011-08-07 22:24

    and why do they call it BLACK Monday....seems racist to me-e-e....

      veld66 - 2011-08-07 22:41

      Agreed! Black sheep of the family, Now Black Monday , well they are no black people rather Brown people, No white people rather Pink people

      gmain - 2011-08-07 22:43

      eish

  • bongane.mabena - 2011-08-07 23:17

    As long as buying and selling exists, money will continue to flow. To the right or the wrong hands. More needs are created; roaring appetites; and much dismay of dissonance, because all reality without money is real, still. Economic activity aims sell, subliminaly! Misleading or not; needs and desires arise; household decision makers ought to be firm on choice of satisfying consumption and dealing with dissatisfaction. We reap what we sow. So, let's sow what we reap in a manner so liberal, yet conservative - Do not set double standards. Africa is the last bastion of development. After all, re-development takes place. - Currencies will rise and fall, depending on who made more and/or ate more, we have the basket of necessity and that's where the money is. Scarcity, is all that lack and/or saturation of resources for goods and services; invention, innovation, diffusion, and adoption determine results ... Lie in wait ... Patience is a virtue that yields with nature. All attitude and belief generate culture; of either nurture or demise!

  • lance ANCY - 2011-08-07 23:48

    its all planned....by you know who...to create fear in people...to lose faith in God...open your eyes people!

      DandyLion - 2011-08-08 09:10

      The Illuminati!!!

      Barry - 2011-08-08 09:18

      @ lance what are you on about ?

  • J T - 2011-08-08 00:54

    All has to come to pass to bring about a green global world order. Hence the reverse engineering process pertaining regarding the basically defunct paper money system. All things have a start and an end. I may well be so that a global currency will emerge out of the chaos, which may well be GLD and/or SLV backed. "Honest scales for honest men". SDR's are another option. Carbon footprint merits perhaps? Dunno. The global footprint by humankind is going out of control and placing our one and only orb at increasing risk. What to do to save our Earth then? The UN has made global recommendations per their Agenda 21 document. Google it and wise up. All makes sense after reading it. A new cleaner, smarter world being the aim. This is understandable given the circumstances and future survival of the species. It appears to me as if a global financial wind-down process is underway. Out of this 'chaos' (or opportunity) will arise a new world system of accountability regarding all life on Earth and consequences to the Eco system. Just listen to the John Lennon's song: Imagine. It says it all. Ordo Ab Chao - perhaps. Novus Ordo Seclorum - possibly. All has to come to pass. So mote it be. The Creator lives.

  • DC2CT - 2011-08-08 02:59

    AA+ is being generous. Things are going to get much worse.

  • Jabulani Pilime - 2011-08-08 07:33

    thanks for the economics lesson,i an going to use yr comments in an assignment.do u mind?thanks for the economics lesson,i an going to use yr comments in an assignment.do u mind?

  • cdwilson3 - 2011-08-08 07:34

    it looks like the days of the week have now become BEE compliant or is it Affirmative Action. First the days then the months, black january, eish what next. I think the one africa currency is next, they are going to call it the Afro, it will be big money.

  • Barry - 2011-08-08 09:19

    Not a black monday for me , sun is shining , made my 100 points on Alsi futures already , going to enjoy the rest of the day.

      william.botha - 2011-08-08 17:01

      Smug alert everyone.

  • Badballie - 2011-08-08 10:05

    The US and EU are both bankrupt for all intents and purposes, this is what happens when you try run a system based on double standards. They should have known from the start that a global market would never work under the conditions they set.

  • MadeinSA - 2011-08-08 13:04

    This time last week your pension / provident / Retirement Annuities were worth a hell of a lot more.

  • HerrCranium - 2011-08-08 16:09

    One can only utter SMB!!! Then for comic relief watch this vid http://www.youtube.com/watch?v=oHg5SJYRHA0

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