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European budget woes, US unemployment claims shake markets
As unemployment claims in the US caused doubts in global markets about whether the economic giant was recovering as quickly or strongly as once thought, political scuffling in Portugal and strikes in Greece raised doubts that leaders in those countries would be able to push through unpopular austerity programs to rein in their ballooning budget deficits. Moreover, Spain said its budget shortfalls will be worse than anticipated in the coming three years.
All of this amounted to a 3.94 percent fall in the İstanbul Stock Exchange’s İMKB-100 index at 3:15 p.m. yesterday. The index fell more than 2,100 points to reach 51,352.11. The index had taken a similar dive yesterday, ending the day with a 2.91 percent loss from 55,068.7 to 53,463.88, a total loss of 3,707 points in less than two days.
BGC Partners chief economist Özgür Altuğ, noting that this fall is mostly due to external factors, speaking to Reuters, said that “the performance of Turkey’s markets is completely due to global worries.” As investors sold their holdings in capital markets and fled to the dollar, the greenback also gained value. The TL/dollar exchange rate rose to TL 1.521 per dollar, the highest thus far in 2010. ING Bank forex trader Tolga Aktan, speaking to Reuters, said, “The increased value of the dollar is leading to a significant loss of value in emerging markets’ currencies.”
Global jitters
Markets from Tokyo to Hong Kong to Seoul dropped about 3 percent or more after Wall Street was hurt by data showing US unemployment claims rose last week. European markets posted smaller losses in early trading Friday after suffering big falls the day before. Oil prices dropped below $73 a barrel, adding to a big slide overnight, while the dollar continued to gain against the euro and also rose against the yen.
“We are getting into a situation where stimulus is needed to sustain growth but governments may not be able to finance it,” said Dariusz Kowalczyk, chief investment strategist for SJS Markets in Hong Kong. “If that scenario materializes, there will be nothing to save the global economy from another recession,” he said. “That risk has caused a lot of stress in markets.”
In the United States on Thursday, the Dow Jones industrial average closed down 268.37, or 2.6 percent, at 10,002.18 after briefly trading below 10,000 for the first time in three months. That came after the Labor Department said claims for unemployment benefits rose by 8,000 to 480,000 last week, disappointing investors who hoped for a decrease.
Ballooning budgets
The slide had begun in Europe over concerns about high debt levels in Greece, Portugal and Spain. Worries in those countries set off broader concerns that government will have difficulty containing rising debts and borrowing more money to help revive their economies.
Greek Prime Minister George Papandreou sought to calm investor fears about his country’s yawning deficit, saying Athens was implementing tax changes and absorbing substantial funds from the European Union to help it cut debt and stimulate growth. “I can understand the doubts but that’s why we have to prove. We will credibly apply this program,” Papandreou told reporters on a visit to the Indian capital, New Delhi.
The Portuguese government’s defeat over a regional finance bill, a climbdown by the Spanish government over pension reform and protests by tax officials in Greece added to the woes of states struggling to reduce budget deficits bloated by recession.
Greece has the highest debt ratio of any eurozone country, expected to reach 120 percent of gross domestic product (GDP) this year. Portugal’s debt is expected to reach 84.5 percent of GDP and Spain’s just 66.3 percent, below the eurozone average. However, both countries’ debt stock is rising fast.
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