Sharp drop in global stock markets

GLOBAL STOCK markets fell sharply yesterday as investors digested Friday’s disappointing US jobs figures and concern mounted about the health of the Spanish economy.

The sell-off fuelled concerns that the rally in the stock markets since the beginning of the year may be faltering.

As traders returned to their desks following the Easter break, brokers were faced with a heavy front of selling in morning trade, which accelerated in the last few hours of trading.

European shares hit a 12-week low, with all the major stock markets closing lower.

The FTSE 100 dropped 2.2 per cent, its lowest level since December 30th. France’s CAC shed 3.1 per cent, while Germany’s DAX index slipped 2.5 per cent. Spain and Italy’s main indices lost 3 per cent and 5 per cent respectively.

Dublin’s Iseq lost 1.5 per cent, outperforming its European peers, though traders in Dublin noted that volumes were light.

Friday’s figures from the US labour department showed that US employers added 120,000 jobs in March, much lower than had been expected.

The figure had exceeded 200,000 for the preceding five months.

Renewed concerns about the euro zone debt crisis also unsettled markets yesterday, with attention increasingly focused on Spain.

Spanish prime minister Mariano Rajoy unexpectedly announced an additional €10 billion in budget cuts on Monday, just two weeks after announcing the most austere budget in more than three decades.

However, he refused to rule out the possibility of a bailout for the country.

This sent Spanish bond yields higher, with Spain’s 10-year benchmark bond surging more than 23 basis points to 5.99 per cent despite the unveiling of the austerity measures, which include the targeting of public services.

The yield on Italian 10-year bonds also rose, climbing 23 basis points to 5.67 per cent, increasing the spread over similar-maturity German bunds to more than 400 basis points for the first time since mid-February.

The sell-off in Spanish and Italian bonds sent investors into perceived safe-haven bonds such as German government debt, with German yields falling to record lows.

Ten-year German bunds, Europe’s benchmark government securities, outperformed all euro area peers, while US treasuries yields slid below 2 per cent.

Meanwhile, oil dropped to an eight-week low after China, the world’s second largest oil consumer, reported a decline in imports of crude oil in March, raising concerns about its oil demand.

The oil price was also affected by expectations that US inventories rose last week.

Global stock markets rallied in the first quarter of 2012 after a dismal performance in 2011 as the euro zone debt crisis intensified.

The European Central Bank’s longer-term refinancing operations, which have provided banks with cheap three-year funding, are widely credited as being one of the main drivers of the recovery in stock markets in the first quarter of this year. – (Additional reporting: Reuters, Bloomberg)