Share prices fell sharply on European markets yesterday in a swift response to the overnight slump on markets in the Far East. Dealers took comfort from the limited losses on London and the resurgence of share prices in New York after Wall Street initially took a tumble before recovering in the afternoon session.
Despite the turmoil on some of the Far East tiger economy stock markets, renewed demand for industrial stocks, and particularly the high technology stocks on the Nasdaq market, brought Wall Street from its early 80-point fall to a closing level of 7622.42 a fall of 72.01 points on the day.
In London, the FTSE finished another volatile week with a 28point loss on the day to hit its lowest level since mid-July, with losses for the week of 2 per cent.
Dealers believe Asian markets and Wall Street will continue to dominate sentiment, but the closure of the New York market on Monday for the Labour Day holiday may leave international markets stable until the middle of next week.
Shares with an exposure to the Far East led the decline in London, with Standard Chartered, which has 31 per cent of its operating profits coming from the Asia-Pacific, falling 5 per cent, while HSBC also fell heavily after Goldman Sachs cut its rating on both banks to "underperform".
Analysts said, however, that the thin volumes in London took away from the strength of the sell-off and that the mood of investors returning from their holidays in the next week will be critical for the London market.
Investors are waiting for a number of key economic figures next week, which could have a crucial impact on interest rate thinking at the US Federal Reserve.
The most important indicator is the non-farm payroll figure on Friday and any significant increase in employment levels may send warning bells ringing in financial markets around the world.
The declines came at the end of a week that has seen unsettled markets swinging wildly in intraday trading, with the general trend always downwards and major indices slipping through successive support points.
But while traders cautioned against giving too much weight to movements in thin summer markets, they were looking warily for hints of when a widely-expected tightening of US interest rates might come.
The Asian "tiger" economies of Thailand and Malaysia are in serious disarray, as are "tiger cubs" like Indonesia and the Philippines; Japan itself appears ever more vulnerable.
Japanese bond yields hit new lows overnight and the Nikkei dipped below the 18,000 level for the first time since mid-April before recovering by the close.
"There aren't any reasons to buy Japanese stocks at the moment. The market mood is very glum," said one Tokyo trader.
The sharp fall in Tokyo share prices sent Japanese government bond (JGB) prices higher, and the yield on the key 10-year bond tumbled briefly to an all-time low of 1.985 per cent before long-liquidation trimmed earlier price gains. Government bond yields have not fallen below 2 per cent anywhere in the world for over 50 years.
