Defence against the economic elements? The street outside a share prices display in Tokyo on Thursday. Photograph: Kazuhiro Nogi/AFP/Getty Images
Global stock markets continued to tumble on Friday, pushing the FTSE 100 to its worst weekly fall in more than three years. Since Monday, £112bn has been wiped off the value of Britain’s leading companies.
Investors headed for the exits amid growing fears about the Chinese economy, the tumbling price of oil, and the prospect of another eurozone crisis prompted by political uncertainty in Greece.
The FTSE 100 finished at 6300.63 on Friday, its lowest level since 20 October. The index was down 161 points on the day and 442 points, or 6.6%, on the week.
It was the biggest weekly decline in percentage terms since August 2011, when recession fears and worries about America’s debts stalked the markets.
In Europe, Germany’s Dax fell 5% and the Eurofirst 300 lost 5.9% over the week. Wall Street was down more than 200 points, or 1.1% on the day, by the time the London market closed on Friday, despite better than expected US consumer confidence figures for December.
The UK has been affected more than other markets because of its bias towards commodity companies, which have been hit hard by the fall in oil. Brent crude dropped 3% to just over $61 on Friday, a five-and-a-half-year low. As recently as June, the oil price had climbed as high as $155, but fears of a global slowdown hitting demand has seen a slump in the price. In its latest monthly report, published on Friday, the International Energy Authority, the world energy watchdog, cut its forecast for demand growth in 2015 by 230,000 barrels per day to 900,000. This was the fourth time in five months it had lowered its expectations and followed a similar prediction from oil cartel Opec earlier in the week.
This latest market rout followed a decision on Monday by Greece’s prime minister, Antonis Samaras, to call a snap presidential election for next week. If three rounds of voting in the Greek parliament, the last on 29 December, fail to back the ruling coalition’s candidate, Stavros Dimas, this could trigger a general election. Investors fear that the far-left Syriza party, already ahead in the polls, could win that vote and attempt to negotiate a new debt write-off with European lenders. If key players such as Germany fail to agree, the prospect of a breakup of the eurozone is again on the horizon.
On Thursday, Samaras said: “Syriza has once again brought the word Grexit [Greek exit] to the mouths of foreigners. What Syriza says provokes fear and doubt everywhere … the markets are reacting because the possibility of elections occurring, and Syriza winning, is interpreted as assured catastrophe for the country.”
On Friday, Syriza’s parliamentary spokesman, Panaghiotis Lafazanis, said if it assumed office, the party would not only cancel the bailout memorandum signed by Athens and its creditors, but ensure that the troika of lenders leaves Greece.
The Athens stock market, which fell almost 13% on Tuesday after the poll announcement, lost 20% over the course of the week.
A host of poor economic news from around the globe added to the gloomy mood. After weak Chinese import numbers earlier in the week, China reported a worse than expected 7.2% rise in industrial production in November, down from 7.7% the previous month, which fuelled fears of a slowdown in one of the world’s fastest-growing economies.
In the UK, there was an unexpected 2.2% drop in construction output in October, compared with forecasts of a 0.7% increase and a rise of 1.8% in September.
Russia was also in the spotlight, for the wrong reasons. The rouble hit new lows – down 1.7% at almost 58 to the dollar – as the twin effects of western sanctions over Ukraine and the falling oil price raised fears about the outlook for Russia’s economy, with a 1% hike in interest rates to 10.5% and central bank intervention failing to halt the slide.
Markets have been supported for many months by the extraordinary stimulus measures introduced by central banks aimed at stimulating the flagging global economy. But the US has now finished its bond-buying programme and at next week’s Federal Reserve meeting, analysts will be seeking clues as to when the US central bank plans to raise interest rates.
European Central Bank president Mario Draghi wants to introduce quantitative easing but faces resistance from within the bank’s board, notably from Germany.
But Thursday’s low takeup by European banks of the ECB’s cheap loan programme puts more pressure on Draghi to come up with an acceptable solution.
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