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Stock markets moved lower on Friday around the world, as investors are liquidating risky positions, mounting evidence of global recession.
U.S stock indexes fell 4 percent, European stocks fell 6.5 percent and Japan’s Nikkei plunged 9.6 percent.
Oil moved lower as well to $63 per barrel while commodities copper to zinc, sugar and coffee were battered by sharp selling.
The gloomy outlook convinced investors that economy is headed for a severe recession despite government efforts to help financial system. Investors have been saying that we are in recession and this is time to realize that we are in recession right now.
With more fear on Wall Street, Hedge Funds have been pulling their portfolios out of the market and reducing risk and rise cash, a process known as deleveraging that only intensifies the selling.
A small comfort came from The National Association of Realtors which said that sales of existing homes rose by 5.5 percent in September compared to August. The median sales price has dropped to $191,600, down by 9 percent from a year ago.
A huge decline in margin calls occurred and everyone from investors, mutual funds and hedge funds are cashing out. A margin call occurs when a broker tells an investor to deposit more money into his account because the securities he bough with borrowed money fell sharply to a certain point. When that happens, investors need to raise cash with most likely selling stocks to get cash.
Fear on Wall Street proves that we are oversold. There is an endless supply of things out there regardless of price. There are signs that credit market is improving, but more slowly than anyone can expect. The rate on three-month loans in dollars, known as the London Interbank Offered Rate, or Libor, fell to 3.52 percent from 3.54 percent on Thursday.
The mortgage rates have moved lower proved that government was on the right track to fix financial sector. The yield on the benchmark 10-year Treasury note fell to 3.64 from 3.66 percent late Thursday.
The deep gloom over global economy is putting economies and currencies under extreme pressure. Investors are pulling money out of countries in Eastern Europe, Latin America and Asia.
A fear if unknown in driving market into volatile negative territory. Once the hedge fund situation unwinds, we will have a better picture how deep the recession will be.