SHANGHAI, Aug. 11 (SMM) -- Global financial market plunged as a result of recent escalating debt crisis in Europe and the US, growing expectations for a third round of quantitative easing (QE3) by Federal Reserve as well as the Korean peninsula issue. These risky events also led to strong market panic.
Earlier rumor that French debt rating might be downgraded led to a plunge of French bank stock prices, with French Societe Generale falling by 20%. European bank stock prices also fell by over 10%, which battered the European stock market with French and Germany stock markets closing over 5% lower. Though the three major US rating agencies and French officials refuted the rumor later, market nerves still got a kick.
The new round of debt purchase plan by European Central Bank seems unable to prevent spreading of the European debt crisis, and the European Financial Stability Fund set as an emergency fund still lacks unanimous reorganization in the euro zone. The European debt crisis is now spreading from Portugal to Italy and France whose sovereign debt risks are relatively low, and the spreading trend is also eroding credit of latter countries. If a downgrade of French debt rating happens, the European debt crisis may be out of control, which will overburden the euro zone economy.
Federal Reserve chairman Ben Bernanke stated clearly on Tuesday that current priority is to lift the US economy out of sluggish status, and pledged to keep ultra-low interest rates at least until 2013, despite strong interior oppositions. The move confirmed many market players’ views that the Federal Reserve would not hike the benchmark interest rates before 2013. Against the back drop of a faltering US economy and a slump in stock markets, new simulative measures will be inevitable, and implementation of QE3 is not far away.
Stock markets in Europe and the US continued to tumble, with the Dow Jones Industrial Average slipping by 500 points to 107, 19.94 points, down 4.46%, Standard & Poor 500 Index sliding 51.77 points to 112,0.76 points, a drop of 4.42%, and Nasdaq Composite Index falling by 101.47 points to 238,1.05 points, down 4.09%. Benchmarks in France, Germany and Spain dropped by more than 5%, while Italian MIB Index closed down 6.7% to 14,676.04 points. As European debt crisis revived, risk aversion sentiment is dominating the market, with any risky event possibly triggering a new round of panic. As a result, gold and other safe-haven assets are welcomed by market players, but base metals and other risky assets are facing great downside pressures.