Friday, May 21, 2010

'Perfect storm' as market tremors hit China, Europe and the US

Capitulation fever has swept global markets on triple fears of faltering recovery in the US, Chinese credit curbs and Europe's intractable escalating debt crisis.

"It is the perfect storm," said Andrew Roberts, credit strategist at RBS. "People have been too complacent about risky assets. This is a global deflation scare and people need to get ready for falls in US and European bond yields to 2pc."

The global stock market sell-off continued for a third day on Friday. London's FTSE 100 dropped 2pc to trade below 5,000 for the first time since last October. Germany lost 2.4pc, France 2.2pc, Japan 2.5pc, while Wall Street opened lower.

Investors shrugged off German approval of a $1 trillion (£700m) eurozone rescue package, doubtful that it can resolve the debt crisis. World equities are now heading for the biggest monthly fall since October 2008.

The US Conference Board leading indicator turned negative in April, the first drop since the depths of the Great Recession. This follows data showing an 11pc slide in building permits, pointing to a double-dip slump in the US housing market later this year. Lumber prices have fallen 26pc from their peak in April.