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Global Markets React To European Debt Crisis


5th February 2010, Wednesday: Equity markets across the globe witnessed a sharp sell-off on Tuesday over concerns about European debt crisis spreading from Greece to other countries of Europe. Stocks closed at two month lows as an impact of the debt crisis in Europe. The oil index dropped and the Euro traded below $1.30 at a 1 year low against the dollar.

The global markets reacted with dips due to worries that the 110 billion Euro ($143 billion) bail-out package for Greece which was announced over the weekend, will do no good to contain the spread of the crisis from Greece to other indebted nations in Europe. Yesterday’s fall in stocks all over the world resulted in a cut of more than $1.1 trillion from the market cap of all stocks put together.

The MSCI Asia Pacific Index excluding Japan lost 1.5 percent to settle at 412.08. The Taiwanese and Indonesian indices were down close to 3 percentage points each. Hang Seng index for Hong Kong and Australia’s S&P / ASX 200 exchange closed with a fall of about 2% each. China’s Shanghai Composite was trading at a 7 month low even after a slight recovery from a 2% plunge. The Japanese markets were closed on account of a national holiday.

The European markets also witnessed a bloodbath with major falls across the indices. France’s CAC 40 index was down 3.6%, while FTSE in London and Germany’s DAX lost 2.6% each. The U.S markets also followed the cues from European and Asian markets and traded in the negative zone. The Dow Jones recovered from a fall of 282 points to close with a decline of 225 points. This was the biggest one day fall on an average for the Dow since February 4. The Nasdaq composite index and S&P 500 lost 74 and 29 points respectively from their previous closing. The biggest worry for the Wall-street came when the CBOE Volatility Index (VIX) went up 18 percentage points to touch its high of 10th February before coming down later.

This picture of the global markets indicates that the markets are headed in the downward direction for a while. Investors are short selling stocks due to lack of confidence in the markets to hold up. The European debt crisis needs to be solved as soon as possible to gain back investor confidence and also support the markets around the globe.