World markets rocky as China, Greece wobble

GLOBAL markets remained stuck in a volatility trap yesterday after a wild 48 hours marked by heavy losses from China to Europe.

GLOBAL markets remained stuck in a volatility trap yesterday after a wild 48 hours marked by heavy losses from China to ­Europe, amid signs of renewed cracks in the global economy.

Losses in Australia’s S&P/ASX 200 moderated yesterday but the benchmark index ended 0.45 per cent lower, mostly pulled down by healthcare stocks. This has taken total losses in local shares to 2.1 per cent for the week, with energy and iron ore miners bearing the brunt of the selldown.

In Australia, new figures showed consumer confidence slumped in December in response to a sharp slowdown in the economy. The Westpac-­Melbourne Institute consumer sentiment index fell 5.7 per cent to 91.1 points from November to December, in a dire reading that may increase the chances of further rate cuts next year.

But all eyes were on China after its stockmarket on Tuesday suffered its biggest one-day fall since August 2009. Yesterday Chinese stocks flitted between negative and positive territory amid worries that more losses for Shanghai may be looming.

The Shanghai Composite Index was up as much as 1.7 per cent and down as much as 1.6 per cent within the first hour of trading. The index closed up a robust 2.9 per cent, just one day after the worst drop in five years. Analysts say a short-term correction could still be due for the region’s best-performing benchmark.

The index plunged 5.4 per cent on Tuesday following a surprise move by Beijing to rein in lending that fuelled concerns about growth in the world’s ­second-largest economy.

However, the choppiness was confined to the mainland, where the market is driven by retail investors. Hong Kong’s Hang Seng Index was off by 0.2 per cent at 23,445.89.

Chinese inflation rose less than expected, providing policymakers with ample room for further stimulus to support growth, a positive for the market. Elsewhere in the region, the Nikkei Stock Average was down 1.5 per cent at 17,540.92.

Oil prices this week slumped to a new five-year low after China’s stockmarket suffered its biggest one-day fall since August 2009, leading to rumours that the ruling party was about to slash its GDP forecasts.

In Europe, a decision to call snap presidential elections in Athens to see off the latest threat to political stability sent Greek shares tumbling their most since 1987 and pushed borrowing costs for the stricken eurozone nation back into the danger zone.

As traders openly discussed the prospect of a eurozone break-up once again, markets across Europe and the US were swept up in the panic.

Wall Street fell 222 points in its early Tuesday session although it recovered somewhat later. In London, the FTSE 100 lost 2 per cent, or 142.68 points, to close at 6529.47 as investors sought safe havens. German, French, Italian and Spanish markets lost 2 per cent or more.

Futures markets were pointing to renewed sharemarket losses in London last night.

Reports that influential Chinese economists were advising the government to reduce the official 2015 economic growth target from 7.5 per cent to 7 per cent fanned the selldown, as did new central bank rules restricting the use of riskier bonds as collateral for short-term loans — limiting the amount of debt-funded stockmarket investing. Talk of slowing growth in China, the world’s largest oil ­consumer, pushed the price of crude down to a new five-year low of $US65.29 a barrel, before it recovered.

After the Greek government called a snap election on Monday, the country’s bailout partners said they would delay a €7 billion ($1.36bn) payment for two months to await the outcome of the presidential elections.

Greece’s stockmarket crashed 11 per cent and 10-year government borrowing costs rocketed 80 basis points to 8.1 per cent, a level considered unsustainable for a country already plagued with debts of more than 1½ times its GDP. As recently as September, Greece could borrow 10-year money at 5.6 per cent.

Greece’s problems infected the eurozone periphery. Yields on ten-year Portuguese debt rose from 2.725 per cent to 2.832 per cent. In Italy, borrowing costs jumped from 1.955 per cent to 2.036 per cent and in Spain from 1.8 per cent to 1.83 per cent.

Traders said that as long as there was the threat that Greece might reject its bailout conditions, quantitative easing was unlikely.

Spooked investors dumped equities and ploughed the money into recognised safe havens. Gold broke back above $US1230 an ounce and 30-year British government debt hit another record low.

Additional reporting: The Times, Wall Street Journal