European markets appear to be fighting back, shrugging off bad news from Asia this morning, where both Tokyo and Hong Kong tumbled by nearly five and a half percent overnight. However, after opening strongly all markets fell back. All Asian markets are in the grip of their worst crisis in nearly a decade, losing nearly 20 percent of their value since mid-July. All this is despite strong fundamentals like earnings and growth. So where is the problem? All those bad housing loans in America…but who is carrying the can? Mostly banks, even if none really knows how much bad debt it is carrying, or who has it on their books.
“I think the issue at this point is the uncertainty and I would be surprised if the banks themselves knew everything that has been going on in all the trading departments – especially in the sort of more exotic areas,” said one dealer.
At the moment it is still a financial, rather than economic crisis, but the risk is it spills over into consumer spending, which in America alone accounts for a quarter of the world’s economy. Hard times may encourage people to shop and borrow less. If that happens, correction may become crash.
Last night Wall street trimmed its losses but that has not stopped Asia having its worst day since the day after the September 11th. attacks on America. Europe lost four percent yesterday, but less this morning.