The fall in world stocks wiped $2.5 trillion off their value this week, as concern grew over the slowing global economy and the spread of debt anguish to Italy and Spain.

Stocks, however, picked up briefly Friday on the news that the US added more jobs than expected during July, putting a halt to one of the worst selloffs since the height of the 2008 financial crisis.

Global equities were down 1.5 percent on the day for a roughly 8.5 percent loss this week. Emerging market shares stumbled 3.2 percent on the day. The pan-European FTSEurofirst 300 fell around 1.9 percent.

Gold jumped more than 1 percent and the oil and metals markets slumped with investors seeking safe havens and reacting to the prospect of a slower global economic growth, Reuters reported.

Jarmo T. Kotilaine, chief economist at the Jeddah-based National Commercial Bank, said: “August is an unusually challenging time for global markets because thin trading volumes can easily exaggerate the impact of news. Even amid the crisis, the picture is not completely bleak with the US employment situation showing some signs of stability.

“In general, however, the mounting market anxiety clearly now reflects an intensifying concern about the health of the global economy and the ability of policymakers to effectively respond to it. It is obvious that the initial policy response to the global crisis was in many ways inappropriate.”

He added this was a structural crisis, driven by excessive credit in the West, yet it has been dealt with as a cyclical crisis, as if more government demand could restore things back to normal. Instead, government stimulus responses in many markets have drained the national treasuries and had little impact on consumers and investors weighed down by excessive leverage. Now government leverage has been added to these as another source of concern and the overall situation is one where additional ammunition for policy interventions is minimal.

The Gulf stock markets closed this week mixed. In Saudi Arabia, the Tadawul All-Share Index (TASI) fell 0.33 percent this week to close at 6,423.87 points. The value of Saudi traded shares reached SR12.56 billion.

“The GCC markets have repeatedly demonstrated their vulnerability to global shocks and developments in the West are likely to depress the mood again, both through their general impact on market sentiment and the renewed prospect of oil demand concerns, however short-term in nature,” Kotilaine said.

For the GCC countries, he said, this is likely to involve yet more lopsidedness in the recovery that continues to rely heavily on public sector spending rather than normalization in the private sector. The GCC is well positioned to deal with renewed global weakness given its ample reserves, admirable macroeconomic health, and generally low leverage. For instance, Saudi public debt is barely 10 percent of GDP (gross domestic product) as compared to figures in excess of 100 percent in a number of Western economies.

Nonetheless, if the global crisis intensifies again, the GCC countries will face tough policy choices about long-term investment and fiscal sustainability, even if there is little concern about near-term stimulus, he added.

Kotilaine said most key economies have extremely low interest rates and government debt levels have brought fiscal consolidation to the fore as an increasingly urgent necessity. As the world now contemplates yet more stagnation or worse, there is little that conventional economic policy can do to help. Yet necessary reforms are politically painful and hence not yet seriously contemplated. Indeed, the market anxiety has been further amplified by the seeming inability of policymakers in many Western countries to rise to the occasion. The US debt ceiling deal represented the lowest common denominator between the two parties, effectively a stopgap measure.

“The European crisis is potentially entering into a whole new, much more serious phase with Italy and Spain, although even the revised euro-zone financial stability fund does not yet satisfactorily address the problems in the countries that have received bailouts,” Kotilaine said.

"The economic outlook is stressing investors to a great degree and sentiment is likely to remain extremely fragile," Reuters quoted Keith Bowman, equity analyst at Hargreaves Lansdown, as saying. "The US economy has been slowing and is moving into a phase where we are going to see spending cuts enforced. Investors are concerned as to where future growth will come from with this backdrop of debt for so many governments."

On Friday, the Swiss franc hovered near record highs against the euro and dollar, while the yen rose. Both are considered safe haven currencies. The franc rose to a record high against the euro of 1.0710 francs in early Asian trade but retreated to 1.0881 in European dealing on fears of official action to weaken the currency.

"The combination of a much gloomier US economic outlook, growing economic concerns in China, persisting debt problems of euro zone peripherals and worries about the stability of the euro as well as rising risk aversion in general are a deadly cocktail for financial markets," Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt, told Reuters

Benefiting from the gloom, gold rose more than 1 percent to a high of $1,669.60 an ounce, readying to test higher levels after powering to an all-time peak $1,681.67 on Thursday, its 10th record in 17 sessions. Silver followed, rising 1.2 percent to $39.28 from $38.81 on Thursday.

In the US, the Dow Jones Industrial Average was trading 1.3 percent higher at 11,530 while the broader Standard & Poor's 500 index rose 1.2 percent to 1,215.

In Europe, France's CAC-40 gained 1.5 percent to 3,369, while UK and Germany markets retraced most of their morning losses. The FTSE 100 was down 0.7 percent at 5,354 and the DAX was 0.4 percent lower at 6,392.

The stock markets in Italy and Spain — the two countries that had become the focus of investors' debt fears in recent weeks — were among Friday's best performers, adding 1.9 percent each.

Earlier in Asia, Japan's Nikkei 225 stock average slid 3.72 percent to 9,299.88 and Hong Kong's Hang Seng dived 4.3 percent to 20,946.14. China's Shanghai Composite Index lost 2.2 percent to 2,626.42.

Shares on the benchmark 30-share Sensex index at the Bombay Stock Exchange tumbled 702.27 points or 3.96 percent to an intra-day low of 16,990.91 — a 13-month trough — but then clawed back some losses in afternoon trade. The index closed down 387.31 points or 2.19 percent at 17,305.87.

Sydney slumped 4 percent, or 171.1 points, to 4,105.4 and Seoul slid 3.70 percent, or 74.73 points, to 1,943.74. Sydney has lost 8.72 percent in the past four days, while Seoul has shed around 10.5 percent in the same period.

Taipei saw the heaviest fall, diving 5.58 percent, or 464.14 points, to close at 7,853.13.
Source:arabnews.com