Fears that unco-ordinated financial regulation could undermine the fragile economic recovery sparked a crisis of confidence among investors.
US, European and Asian stocks tumbled, while some eurozone government bond markets seized, prompted in part by unilateral moves by Germany to ban naked short selling and the politicised debate over the US financial regulation bill.
A worse-than-expected report on weekly US jobless claims and Greek protests over wage cuts also sent investors scurrying for safety, away from the euro and into US Treasuries, German bonds and UK gilts.
David Owen, chief European financial economist at Jefferies, said: “The lack of clarity from the politicians has shattered confidence to the extent that stocks are selling off and the eurozone government bond markets are at a standstill.”
Angela Merkel, Germany's chancellor, fanned the growing fear of political intervention in the markets with her comments at the opening of a high-level conference on financial market regulation in Berlin yesterday.
“We need the financial industry to be honest with us,” she said. “If we don't get honesty, then we might not do the right thing technically but we will do the right thing politically.”
David Cameron, Britain's new prime minister, is expected to stress the need for international co-ordination when he meets Ms Merkel tomorrow. The unilateral ban on naked short selling was described by one British official as “crackers”.
The pan-European FTSE Eurofirst 300 index dipped close to eight-month lows, the FTSE 100 was just above lows of the year, while the S&P 500 and the Nikkei 225 Average dropped through the 1,100 and 10,000 marks respectively.
The sharp rise in risk aversion saw the Vix, the Wall Street “fear gauge” and best guide to market volatility, jump to 13-month highs. Market makers in eurozone government bonds said the market was no longer functioning for the weaker economies of Portugal, Spain and Greece.
Hopes for a swift global recovery suffered a jolt yesterday as freezing winter weather contributed to a sudden drop in spending and confidence across several advanced economies.对全
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