22 Sep 2011

Markets plunge on US gloom

Markets slide after bleak economic data from across the globe stokes recession fears. One analyst tells Channel 4 News the western world is facing a “sharp slowdown”.

The FTSE 100 has slumped more than 4 per cent, and markets across Europe have followed suit. Last night markets in the US and across Asia also fell. For the latest markets data, click here.

Investors have been spooked by bleak comments from US Federal Reserve Chairman Ben Bernanke, who warned that there are “significant” risks to the economy of the United States – the world’s largest economy. Poor data from the eurozone and China have not helped matters, increasing fears that the world is staring a double-dip recession in the face.

There has also been a lukewarm response to the Fed’s latest $400m stimulus package for the US economy, dubbed Operation Twist, which was smaller than expected.

World Bank President Robert Zoellick said “difficult” economic news was making a double-dip recession more likely, but stressed he still did not believe it was inevitable.

My confidence is being eroded daily by the steady drip of difficult economic news. World Bank President Robert Zoellick

“I still think a double dip recession for the world’s major economies is unlikely, but my confidence in that is being eroded daily by the steady drip of difficult economic news,” he said.

US Treasury Secretary Timothy Geithner added to the gloom, suggesting that concerns centred around the eurozone but also “whether the political system in the United States is up to the challenges we face.”

However IMF Managing Director Christine Lagarde suggested in a press conference that there was a way out.

Afterwards, she tweeted: “My msg: the global outlook has weakened, & risks have increased. But there is a way forward, if countries act now, act boldly, and act together.”

Read more: Why should we care about nervous markets?

‘Barriers are now political’

Leaders including Prime Minister David Cameron have sent a letter to the G20 urging for political focus to calm the economic storm.

The letter read: “The barriers to action are now political as much as economic. We must send a clear signal that we are ready to take the actions necessary to maintain growth and stability for all for the future.”

There is a sense of it that is the best you can come up with, then that’s disappointing. Paul Kavanagh, analyst

The global stock market jitters are the latest sign of a darkening outlook for the global economy. Earlier this week, Italy’s credit rating was downgraded. Then, the IMF warned that growth here in the UK would be worse than expected.

Paul Kavanagh, chairman of financial firm Killik Capital, told Channel 4 News the economic problems had been building for some time – but the short-term problems were due to disappointment over the shortcomings of “Operation Twist”.


“There is a sense of if that is the best you can come up with then that’s disappointing. The western world is in need of some treatment and the feeling is that the medicine delivered last night is not going to be sufficient to avert what looks like quite a sharp slowdown.”

Mr Kavanagh said slowdowns earlier this year were attributed to the Japanese earthquake, but now investors are pricing in the shared belief that problems now are not just another “soft patch” in recovery – but recession.

“For the first time, with Ben Bernanke, we had a central banker telling it as it is at the moment. It is like 2008,” he said. And he said the UK is not immune – with our government effectively powerless to prevent global problems having an impact here.

“We have mortgaged a lot of our future for globalisation. So when the US goes, when Europe goes, in the way they are doing, we are in the face of that. And we can only do so much to help stop that,” he said.

“What is happening is going to happen. All we can do is little things and make sure that we can protect those that need it.”