Stock markets around the world plummeted Friday and oil prices plunged to their lowest in more than a year. Even gold, the traditional safe haven in times of panic, fell sharply. The common denominator was growing fears that governments, central banks and finance ministers seem powerless to stop the deepening of a global recession that will slam corporate earnings and lead to deep job losses around the world. Looming recession fears were exacerbated Thursday by Alan Greenspan, the former head of the US Federal Reserve, who warned of a “credit tsunami” and confessed he was baffled as to how the financial system has broken down. “We have now reached a point where fundamentals and long-term valuation considerations do not matter any more for financial markets,” said economist Nouriel Roubini at New York University. “There is a free fall as most investors are rapidly deleveraging and we are on the verge of a a capitulation collapse. What matters now is only flows – rather than stocks and fundamentals –and flows are unidirectional as everyone is selling and no one is buying as trying to buy equities is like catching a falling knife.” The Dow Jones industrial average and S&P 500 indexes both closed down over 3 percent, but pared losses after dropping more than 5 percent at the open. The Dow ended down 312.30 points, or 3.59 percent, and the S&P closed down 31.34 points, or 3.45 percent. The Nasdaq Composite Index ended down 51.88 points, or 3.23 percent. In Europe, Germany's benchmark DAX index was down 10.76 percent, France's CAC40 dropped 10 percent while Britain's FTSE 100 sank 8.67 percent after the government said its gross domestic product fell 0.5 percent in the third quarter, putting the country on the brink of recession. In Moscow, trading was halted until Tuesday in both main exchanges. Japan's Nikkei stock average dropped 9.6 percent. South Korea's KOSPI Composite Index closed down 10.6 percent. Hong Kong's Hang Seng index fell 8.3 percent and markets in Thailand, Indonesia and the Philippines were also down sharply. India's Sensex index fell by 1,070.63 points or 10.96 percent at 8,701.07, its lowest level since November 23, 2005, after the central bank kept interest rates steady, disappointing investors. Also, for the first time, India's currency breached the 50 rupee-to-the- dollar mark, trading at 50.05 rupees. Looming recession fears were exacerbated Thursday by Alan Greenspan, the former head of the U.S. Federal Reserve, who warned of a “credit tsunami” and confessed he was baffled as to how the financial system has broken down. Oil dropped nearly $4 a barrel and took the steam out of an OPEC agreement to cut output. US light crude for December delivery settled $3.69 weaker at $64.15 a barrel, after falling as low as $62.65, its lowest since May 2007. It has fallen more than $40 a barrel in a month. London Brent crude settled down $3.87 at $62.05. The dollar plunged below 93 yen, a 13-year low. Gold fell as low as $681 an ounce, its lowest since January last year. The news was all bad. The UK's third quarter gross domestic product fell 0.5 percent, putting the country on the brink of recession. Shares of Japan's Sony sank more than 14 percent when it slashed its earnings forecast for the fiscal year. In Germany, Daimler's stock dropped 11.4 percent in morning trading; it reported lower third-quarter earnings and abandoned its 2008 profit and revenue guidance. Emerging market economies and currencies are coming under extreme pressure. Institutional investors have been pulling out their money en masse in a bid to reduce risk and raise cash – a process known as deleveraging that only intensifies the selling.Investors are pulling money out of countries in Eastern Europe, Latin America and Asia on fears vulnerable countries will not only be hit hard by the financial crisis but may also default on debt.
