Collapse of the Global Economy

Stocks Drop After Euro Slumps, Dow Falls Below 10K

May 25, 2010

AP - The Dow Jones industrials plunged below 10,000 Tuesday after traders dumped stocks on worries about the global economy and tensions between North and South Korea.

The Dow fell about 160 points in afternoon trading. It has fallen 1,346 points, or more than 12 percent, from its recent high of 11,205, reached April 26. The Dow and broader stock indexes all fell more than 1 percent.

Investors also exited the euro and commodities, including oil, and again sought safety in Treasurys. That drove interest rates lower. The benchmark 10-year note's yield fell to its lowest level since April 2009.

World stock markets also tumbled. Investors are not focusing on current signs of growth, but instead trying to gauge where the global economy will be later this year. Pessimism, particularly about Europe, has replaced a hopeful tone among traders early in the year.

"Market participants feel like they're walking on eggshells," said Oliver Pursche, executive vice president at Gary Goldberg Financial Services in Suffern, N.Y. "Every small piece of potentially bad news is being exaggerated and mentally being fast-forwarded to the worst-case scenario."

One sign of the distress can be found in the London interbank offered rate, or Libor. That's the rate at which banks lend to one another. There are now worries about which banks might be hardest hit if countries like Greece, Portugal or Spain default on their debt.

The concern is pushing Libor for three-month loans in dollars higher. The rate rose substantially Tuesday, rising to 0.53 percent from 0.51 percent Monday. Libor had jumped in the fall of 2008 after the collapse of Lehman Brothers helped trigger a crisis of confidence throughout the global financial system.

European Union leaders warned Tuesday that the continent's economy would stagnate unless governments make major reforms to promote growth. The problem is, though, that large debts in some countries make it difficult to implement stimulus measures to rally economies.

The euro approached a four-year low, which it set last week. The euro dropped to $1.2244, bringing it within a penny of the low of $1.2146 it touched last week.

Traders have been selling the euro heavily in recent weeks because of uneasiness over whether steep budget cuts in countries like Greece, Spain and Portugal will drag down an economic recovery on the continent. Italy was set to become the latest European nation to announce spending cuts to reduce its deficit.

Markets were also hurt by reports that North Korean leader Kim Jong Il ordered his military to combat alert because of rising tensions on the Korean peninsula. North Korea also said it would cease communication and relations with Seoul. South Korea has said North Korea was responsible for the sinking of a South Korean warship two months ago. Major indexes in Japan and Hong Kong fell more than 3 percent.

A disappointing report on U.S. home prices added to a downcast mood among many traders. The Standard & Poor's/Case-Shiller 20-city home price index fell 0.5 percent in March from February, a sign that the housing market remains weak even as mortgage rates are still near historic lows. There are concerns that last month's expiration of the government's home buyer tax credit will hurt sales in the coming months ...

Oil Drops to Near $69 as Stock Markets, Euro Fall

May 25, 2010

Associated Press – Oil prices fell to near $69 a barrel Tuesday in Asia as plunging regional stock markets and a weaker euro rattled the confidence of commodity investors.

Benchmark crude for July delivery was down $1.08 to $69.13 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract advanced 17 cents to settle at $70.21 on Monday.

Oil has plummeted 21 percent from $87.15 a barrel earlier this month as a falling euro made dollar-based crude more expensive for investors holding the European currency.

Investor concern that Europe's debt crisis could undermine global economic growth has also hurt stock markets, which oil traders watch as a measure of overall confidence.

All major Asian stock markets fell Tuesday, following a 1.2 percent pullback in the Dow Jones industrial average Monday. The euro dropped to $1.2302 on Tuesday from $1.2342 on Monday.

"The market appeared to acquiesce to the weakness in the stock market," Ritterbusch and Associates said in a report. "The primary drivers of this month's price plunge remain heavily skewed toward the bearish side."

In other Nymex trading in June contracts, heating oil fell 1.54 cents to $1.8839 a gallon, and gasoline dropped 2.17 cents to $1.9491 a gallon. Natural gas gained 2.8 cents to $4.055 per 1,000 cubic feet.

In London, the Brent crude July contact was down $1.07 to $70.10 on the ICE futures exchange.