Rating of U.S. debt worsened, markets that border on the stock market crash, the collapse of the Societe Generale … summer was more than eventful in the economic front. L'Expansion. Com provides an update on what you missed, and what could happen. An electronic board showing the plunge of the Italian stock markets August 9, 2011.
The least we can say is that the summer was hectic, not just on the weather front. For a month, equity markets are yo-yo, mired in a debt crisis which it is not the end. Despite the many political will to stem the panic room, investors have never been so fearful. The CAC 40 has lost 16% within a month. Back on the reasons for the stock market panic.
Why stock markets have plummeted?
To explain the crisis of the summer, we should go back a long time ago.Back on the crisis of private debt (subprime) that resulted in a public debt crisis (see our graphic here). Also explain how the United States are in debt without limit to display a huge debt of 14,300 billion, or how the eurozone failed to apply themselves to fiscal discipline to which she had promised. But that was before the summer.
To stay on the stock market crisis, therefore, it all started on July 22 after the publication of bad U.S. indicators and the unprecedented thing downward revision of U.S. growth earlier. The stock markets began a fall that they will recover just 13 sessions later. For the meantime, a decision is much more brutal moral taint the market.We are Saturday, August 6, and the rating agency S & P decided to degrade the rating of U.S. debt, despite the agreement reached a few days earlier on raising the debt ceiling. Involved, she said, the risk of slower U.S. growth, and the inability of leaders to agree on how to reduce the deficit. The following Monday, all eyes are on the stock exchanges that predictable drop considerably. The crash (10% drop in one or more exchanges in a day) is narrowly avoided, but the market share is considerably achieved. Also much more than U.S. government bonds, investors know that deep down safely.
In fact, the controversial decision to S & P revealed a fear in the markets that a recession in the global economy.Problem of debt and sluggish growth, the perfect ingredients Mix together the …
What role banks played in the crash latent?
Initially, banks were particularly affected by the stock market tumble, as the other values are highly dependent on global economic growth. Especially since they are very exposed to European sovereign debt. The BNP, to name it, holds 22 billion euros of bonds in Italy.
Soon, banks become the target of the obsession of markets, victims of more or less misleading in their health. Societe Generale is the most striking example. August 8, title closing on a drop of more than 20%, the victim of a rumor amazing: according to British newspaper Daily Mail, the bank is on the verge of bankruptcy and could be nationalized.The same day, other rumors are springing up everywhere on the web and in trading rooms, which evoke a degradation of the note next to France by the rating agencies, or a default next to Italy. The surprise return of Nicolas Sarkozy, who convened a crisis meeting at the Elysee Palace, lends credence to the rumors. By which end of course self-sustaining.
We are in the month of August, and trading rooms are empty, which probably accelerated the downward movement. As for speculation, it has played in full, the brokers down on betting the securities most sensitive. The AMF decided to do the same and the device temporarily banned short selling. But it's too late, the damage is done. The banks are worse.
Will follow a brief period of calm in the markets.The latter, who probably over-interpreted the risks to the economy, take over for a few days of color. But soon the panic is back. August 18, the Fed launched an investigation into the level of liquidity of U.S. subsidiaries of European banks. The shock is immediate. Investors, who still lead the terrible crisis of 2008 that followed the collapse of Lehman Brothers, fear that the interbank market flu. That is to say that the banks no longer want to lend to each other.
The credit facilities with the ECB rise dangerously, proof that banks are less and less confidence. The scenario of the credit crunch, that banks can not finance the economy is on everyone's mind.
What can we expect next?
It's hard to say.In exchange, we must not underestimate the power of self-fulfilling prophecies. In addition to the real issues of debt, all depend on the credibility of messages and actions that will be made at the political level. But also of how states will implement the drastic austerity measures they have imposed. This weekend, Barack Obama and Angela Merkel have agreed that a "concerted action" to stimulate global growth. A first step has seemed rather reassure the markets. At 16:15, the CAC 40 showed such an increase of 2.57%.
According to most economists, the scenario of a global recession is not yet on the agenda. However, all the engines of the Western economy are seized and monetary institutions and public authorities have more tools at their disposal in 2008. Namely the management of fiscal and monetary policy.The example shows a Fed interest rates near zero and did not want recently used his last cartridge, the famous EQ3 (quantitative easing) the injection of liquidity into the system, including the long-term in any case contested.
Anyway, no good news on the macroeconomic front, there is little chance that the markets will resume in earnest. The yo-yo is expected to continue for some time.
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