FTSE drops again on recession fears

Nov 21 2008 by Iain Laing, The Journal

TRADING screens across the City turned red yesterday as stocks took a fresh pounding on global recession fears.

The FTSE 100 dropped 130.69 points, or 3.3%, to 3874.99. World stock markets fell starting in Asia where Japan’s Nikkei index ended 6.8% lower and Hong Kong’s main index fell 4%. Shares in Europe also dropped, Germany’s DAX and France’s CAC 40 falling more than 3%.

Sentiment was hit by big falls on Wall Street as investors were caught by a worse than expected jump in unemployment claimants to a 16-year high.

The Dow Jones industrial average fell 445 points, or 5.6% yesterday. The decline brings the Dow’s two-day decline to 873 points and took the index down to levels that have not been seen for six years.

Crude oil tumbled below $50 a barrel while lower metal prices also hit miners, offsetting gains for beleaguered banking stocks. Evidence of a further decline in the world economy is hitting the price of oil because demand is expected to drop as manufacturing slows.

The FTSE 100 Index’s drop meant it closed at its lowest level since the financial turmoil of mid-October, after a 5% dive on Wednesday.

Insurers and miners took the brunt of London’s fall. Traders said insurers had been hit hard by big sell-offs of their counterparts in the US, adding to general concerns over their capital strength in struggling equity markets.

But many banking stocks recovered ground after a difficult previous session. Royal Bank of Scotland gained 3.7p to 46p on the day investors approved a £20bn Government-backed bail-out scheme by an overwhelming margin.

In New York, stocks plunged for a second straight day, as financial and energy stocks tumbled and as demand for the safety of government debt spiked to historic levels.

Stocks, which had been weak for much of the session, lost ground after hopes faded that lawmakers would soon put together an aid package for the US automakers and as major indexes like the Standard & Poor’s 500 index broke through lows established in 2002.

Last night it was confirmed that the bail-out vote for the US car industry has been put off until next month.

America’s top three car makers must first come up with a plan showing how any bail-out money would help transform their industry, Democrats said.

The big car companies – General Motors, Ford and Chrysler – have been seeking government loans totalling $25bn (£17bn) to stay in business until spring.

Nancy Pelosi, Democratic speaker of the House of Representatives, said: “Until they show us the plan, we cannot show them the money.”