World markets in turmoil on growth jitters

Equity markets across the globe went into a tailspin, as panicky investors scurried for cover amid fears that the US economy was slowing down and the eurozone credit crisis will deteriorate. The selloff across world markets came despite the US Congress clearing a crucial legislation to lift the debt ceiling before the Aug. 2 deadline. The undertone was hit by a series of downbeat economic reports pointing to a deceleration in the US economy. Also, Moody's and Fitch warned that US' coveted "AAA" rating was still in danger of being downgraded. Economic data from other pockets of the world too showed moderation in economic activity, especially in the manufacturing space.



In addition, yields on Italian and Spanish government bonds jumped amid concerns that the eurozone debt crisis will spread to these two large economies. Grim comments from ECB chairman Jean-Claude Trichet about the state of the eurozone economy didn't help matters either. The ECB resumed purchases of eurozone bonds, but it restricted them to Portugal and Ireland. Markets had expected the central bank to buy bonds of Italy and Spain, which are seen at risk from the region's debt contagion. Trichet said there was not full support in the central bank for the action, underscoring deep divisions within Europe over how to handle a debt crisis that has forced Greece, Ireland and Portugal to seek bailouts.

Complicating matters was currency market intervention by Japan and Switzerland to check the recent spurt in their currencies. Both these currencies are apparently considered the safest in the world. US stocks on Thursday suffered their worst sell-off in two years. European stocks slumped to a level not seen since after the financial crisis in mid-2009. Thursday's sell-off on Wall Street was the worst since the global financial crisis. The benchmark MSCI all-country world stocks index fell to the lowest since Dec. 1, 2010. The index has slumped nearly 11% since late July.

Commodity markets extended heavy losses on fears of slowing global demand. Commodities declined for an eighth day, the longest losing streak since December 2008, as concern deepened that the global economic slowdown would reduce demand for raw materials. Gold prices hit new record high before softening a bit on the last two days of the week. Investors sold gold positions to cover losses elsewhere in their portfolios. Oil fell sharply to a five-month low in New York and was set for its biggest weekly loss in three months. Copper dropped to the lowest since June.

Wall Street and world financial markets were eagerly waiting Friday's monthly US jobs report, which has come in below forecasts for the last two months. The jobs data, to be announced prior to the opening of US markets, could prove to be crucial amid increasing trepidation over the state of the US economy and its fallout on the world recovery. Economists are expecting the report to show that the US economy created 70,000-80,000 jobs in July, marking a slight improvement over the paltry 18,000 jobs added in June. The unemployment rate is expected to hold steady at 9.2%. June's rise was the smallest since September 2010 and followed a gain of just 25,000 in May.

Recent economic statistics out of the US has showed that manufacturing expanded at the weakest pace in two years, spending unexpectedly fell and the services industries grew at the slowest pace since February 2010. The US economy grew at a 1.3% annual rate in the second quarter, the Commerce Department reported last week, less than the 1.8% median estimate of economists. The government also revised down its first- quarter estimate to 0.4%, less than the 1.9% previously indicated. Federal Reserve policymakers will closely analyze the jobs data before they meet on Tuesday. Fed chairman Ben S. Bernanke and his FOMC colleagues could seek to address some of the concerns on the US economy and may also comment on the recent turmoil in the financial markets.