August 2011 stock markets fall

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The August 2011 stock markets fall was the sharp drop in stock prices in August 2011 in stock exchanges across the United States, Middle East, Europe and Asia. This was due to fears of contagion of the European sovereign debt crisis to Spain and Italy, as well as concerns over France's current AAA rating,[1] concerns over the slow economic growth of the United States and its credit rating being downgraded. Severe volatility of stock market indexes continued for the rest of the year.

Downgrading of US's credit rating[edit]

Standard & Poor's downgraded America's credit rating from AAA to AA+ on 6 August 2011 for the first time.[2] The US had a AAA rating since 1941.[3] Standard and Poor's said that it could go down further than AA+,[4][5] with Moody's also warning of a potential downgrade of the government's credit rating.[6]

Commodities[edit]

Gold[edit]

Gold increased in value up to US$1750.[7][8] Gold is typically considered a secure investment in times of economic uncertainty,[9] with other investors and traders also investing in foreign currencies, such as the Swiss Franc and Japanese Yen, also considered to be safe investments.[10]

Market movements[edit]

Asia[edit]

 Japan: On 4 August, the Japanese government intervened in currency markets in order to combat the overvalued state of the Yen by spending between ¥400 billion and ¥500 billion to help achieve and maintain an exchange rate of roughly US$1 to ¥80, a level seen as crucial to help exporters compete.[11]

 Thailand: On 8 August, the SET Index dropped by 15.19 points (1.39%) to 1,078.19 points, with the SET50 Index and SET100 Index revealing a drop of 11.04 points (1.45%) to 750.11 points and 24.55 points (1.48%) to 1,636.53 points respectively.[12] Trading on 9 August saw greater slides, with the SET Index revealing 35.65 points (3.31%) down to 1,042.54 points, and similar results from the SET50 Index showing 25.19 points (3.36%) down to 724.92 points and the SET100 Index with 56.10 points (3.43%) down to 1,580.32 points.[13]

Europe[edit]

 France: The CAC40 fell by 20% in two weeks.[14] It fell by 5.5% on 18 August 2011. The CAC thus moved from 3,800 points to 3,000 points in 10 days.

 Germany: The DAX fell by 5.8% on 18 August 2011. The DAX closed at 5246.20 on September 5, 2011, compared with 7376.24 on June 30, 2011.

 Switzerland: Facing pressure of the Swiss Franc from currency markets who see the currency as a safe haven, the Swiss National Bank announced 3 August cuts on three-month LIBOR interest rates down to near-0 and injected 50 billion more francs into the market to stem off the threat to the economy and price stability of the "massively overvalued" currency.[15][16] The Swiss franc was successfully weakened by 1.9% to 1.1033 for the Euro and 1.1% to 77.04 centimes for the US dollar on 4 August.[17] But continued interest by foreign investors to buy Swiss francs, especially after the announcement of the Federal Reserve to freeze US interest rates for 2 years, led to record high strength of the Swiss franc of 70.85 centimes to the US dollar on 9 August.[18]

 Turkey: On 5 August, the Turkish central bank announced the auction of US$50 million in an effort to protect the Turkish Lira after the currency lost value due to benchmark interest rate cuts,[19] with other daily foreign exchange auctions of US$60 million on 8 August and US$70 million on 9 August.[20] Overnight borrowing rates were increased from 1.5% to 5%, along with lending rates for deposits of the US dollar and Euro reduced in order to boost foreign exchange liquidity.[20][21]

 United Kingdom: The FTSE 100 Index fell from over 5,900 points on 26 July to under 4,800 at 9:35 am on 9 August, its lowest level since July 2010.[citation needed] On 18 August 2011, it fell 4.5%. On 22 September 2011, the FTSE 100 fell 4.7%, the largest daily fall since 2 March 2009.[22]

North America[edit]

 United States: On 8 August, the S&P 500 lost 79.92 points (6.7%) to 1,119.46 points with all 500 stocks and ten industry groups falling, with the Dow Jones Industrial Average dropping 634.76 points (5.6%) to 10,809.56 points and the NASDAQ Composite falling 174.72 points (6.9%) to 2,357.69 points, contributing to an approximate US$2.5 trillion erased from global equity value; a total of US$7.8 trillion since 26 July.[23][24][25]

 Canada: On 4 August, the Toronto Stock Exchange lost 435.90 points or 3.4% following the American markets and fear of overseas debt problems.[26] With the Finance Minister's re-assurance of the strong Canadian banking system, and the Bank of Canada maintaining the same interest rate, the S&P/TSX Composite Index fared much better than other markets. On 6 August, the market fell to its lowest point of 11,670.96, and by 15 August, it had recovered almost all of its losses going back to 12,693.61. This was partly due to the high number of resource companies listed on the TSX gaining due to soaring commodity prices such as gold.

Middle East[edit]

As the Middle Eastern markets reacted first to the news of the downgraded US government credit rating, Sunday trading resulted in losses in all markets. The EGX30 closed down 4.17% on Sunday, with the Dubai Financial Market closing at 4.4% after plunging more than 5% before rebounding, seeing the Abu Dhabi Securities Exchange fall 2.53% by closing. The Saudi markets experienced early trading losses of 5.46% before recovering and closing at a loss of 0.88%. The Qatar Exchange closed at 2.51% after falling 3%, with the Tel Aviv Stock Exchange shedding 6.04%.[27]

Trading on 9 August led to more losses, as the EGX30 fell to a 5% low, prompting a 30-minute freeze on activity, before recommencing with a drop to 5.75%, followed by a steady rebound to close at 4.75% down with 4,478 points.[28] The Saudi markets experiencing similar loss to 4.27%, while Dubai and Abu Dhabi closed at a lower 1.95% and 1.34% dip respectively.[29]

Oceania[edit]

 Australia: On 8 August, the Australian Securities Exchange saw nearly A$35 billion of share value lost, with a plunge of 2.9% as panicked investors led share prices down into bear market territory, pressuring investors of high exposure to dump shares in favour of margin calls.[30]

Trading on 9 August revealed a 5.5% drop at its worst point before recovering rapidly in closing with 268 points gain, with the ASX200 index ending with an overall gain of 48.7 points (1.22%) at 4034.8 points.[31] Traders attributed the sudden recovery to an intervention by the Korean and Taiwanese governments.[32][33] For the first time in 5 months (since March 2011[31]), the Australian Dollar fell below parity with the US Dollar to 99.28¢ before recovering to 101.85¢ in afternoon trade (but 1.5% below Monday's close), seeing the Australian Dollar's longest losing streak since the currency was floated in 1983.[34]

Market intervention[edit]

Europe[edit]

Belgium, France, Greece, Italy, Spain: On 11 August (with the exception of Greece on 8 August), the market authorities of Belgium, Italy, France and Spain as well as the European financial regulator ESMA announced the ban of all forms of short selling on banks and other financial companies as a result of growing instability in markets on rumours of French banks risking downgrades and concerns of various European banks that are highly exposed to indebted nations such as Greece.[35]

See also[edit]

References[edit]

  1. ^ Bremer, Catherine; Dmitracova, Olesya (8 August 2011). "Analysis: France, Britain AAA-ratings under scrutiny". Reuters (Paris/London). Retrieved 10 August 2011. 
  2. ^ Puzzanghera, Jim (6 August 2011). "S&P downgrades U.S. credit rating". Los Angeles Times. Retrieved 10 August 2011. 
  3. ^ Detrixhe, John (3 August 2011). "U.S. Credit Rating Affirmed as Moody’s, Fitch Warn of Downgrade on Deficit". Bloomberg. Retrieved 10 August 2011. 
  4. ^ "S&P Justifies US Downgrade, Says More Action Could Follow". International Business Times. 7 August 2011. Retrieved 10 August 2011. 
  5. ^ Paletta, Damian (5 August 2011). "More S&P Downgrades Expected". Wall Street Journal. Retrieved 10 August 2011. 
  6. ^ Brandimarte, Walter (8 August 2011). "Moody's cautious about U.S. deficit cuts plan". Reuters (New York). Retrieved 10 August 2011. 
  7. ^ Fitzgerald, Barry (10 August 2011). "Surge in price presents a golden opportunity". The Sydney Morning Herald. Retrieved 9 August 2011. 
  8. ^ "Gold surges past $US1750". The Age (Australia). 9 August 2011. Retrieved 9 August 2011. 
  9. ^ Hennessy, Niamh (9 August 2011). "Investor nerves apparent as gold strikes record levels". Irish Examiner. Retrieved 9 August 2011. 
  10. ^ Aldrick, Philip (4 August 2011). "Japan follows Switzerland by weakening currency". The Telegraph. Retrieved 9 August 2011. 
  11. ^ Nakamichi, Takashi; Lauricella, Tom (4 August 2011). "Japanese, Swiss Move to Push Currencies Lower". The Wall Street Journal. Retrieved 10 August 2011. 
  12. ^ "SET index drops 15.19 points". Bangkok Post. 8 August 2011. Retrieved 10 August 2011. 
  13. ^ "SET index drops 35.65 points". Bangkok Post. 9 August 2011. Retrieved 10 August 2011. 
  14. ^ Gatinois, Claire (12 August 2011). "La spéculation accusée de faire chuter les actions des banques". Le Monde (in French). Retrieved 12 August 2011. 
  15. ^ Reid, Katie; de Sa'Pinto, Martin (3 August 2011). "SNB cuts rates to counter soaring Swiss franc". Reuters (Zurich). Retrieved 10 August 2011. 
  16. ^ Wille, Klaus (3 August 2011). "Franc Plunges From Records as Swiss Central Bank Unexpectedly Lowers Rate". Bloomberg. Retrieved 10 August 2011. 
  17. ^ Bennett, Allison (4 August 2011). "Franc Retreats After Interest-Rate Cut; Dollar Declines as Services Slow". Bloomberg. Retrieved 10 August 2011. 
  18. ^ Farchy, Jack (9 August 2011). "Swiss franc soars in hunt for haven". Financial Times (London). Retrieved 10 August 2011. 
  19. ^ Bryant, Steve; Gokoluk, Selcuk (5 August 2011). "Turkish Central Bank Sells Dollars as Interest-Rate Cut Drives Lira Lower". Bloomberg. Retrieved 9 August 2011. 
  20. ^ a b Candemir, Yeliz (9 August 2011). "Istanbul Stock Index Falls 5% In Early Trading, Extending Losses". The Wall Street Journal (Istanbul). Retrieved 9 August 2011. 
  21. ^ Gokoluk, Selcuk (9 August 2011). "Turkey’s Lira Appreciates After Central Bank Reduces Dollar Lending Rate". Bloomberg. Retrieved 9 August 2011. 
  22. ^ Shares fall sharply on economy fears
  23. ^ Roeder, David (9 August 2011). "Dow dropped 634 Monday in worst one-day drop since December 2008". The Herald News. Retrieved 10 August 2011. 
  24. ^ "Dow plunges as $2.5tn erased from equities". The Irish Times. 9 August 2011. Retrieved 10 August 2011. 
  25. ^ McDonald, Sarah (9 August 2011). "Global Bonds Gain $132 Billion as Stock Rout Cuts $7.8 Trillion". Bloomberg Businessweek. Retrieved 10 August 2011. 
  26. ^ "Toronto Stock Exchange August/July 2011 History". TMX Group / quotemedia. Retrieved 17 August 2011. 
  27. ^ "Middle East stock markets plunge on US downgrade". Ahram Online. 7 August 2011. Retrieved 10 August 2011. 
  28. ^ "Egypt stocks finish day with 4.75 per cent loss". Ahram Online. 9 August 2011. Retrieved 10 August 2011. 
  29. ^ "Mideast exchange round-up: Stocks continue to decline". Ahram Online. 9 August 2011. Retrieved 10 August 2011. 
  30. ^ Yeates, Clancy (9 August 2011). "$35bn down the drain". The Age (Australia). Retrieved 9 August 2011. 
  31. ^ a b Johnston, Eric (10 August 2011). "Market bounce defies world". The Age (Australia). Retrieved 9 August 2011. 
  32. ^ Colebatch, Tim (10 August 2011). "Shaky sharemarket fails to stir economy". The Age (Australia). Retrieved 10 August 2011. 
  33. ^ Raja, Shani (9 August 2011). "Australian Stocks Rebound as Intervention Spark Recovery Hopes". Bloomberg Businessweek. Retrieved 10 August 2011. 
  34. ^ Lynch, Jared (10 August 2011). "Losing streak: dollar dips below parity as crisis dries up demand". The Sydney Morning Herald. Retrieved 9 August 2011. 
  35. ^ "Four EU nations ban short-selling on banking stocks". BBC News. 11 August 2011. Retrieved 12 August 2011.