The main European stocks plunged by 4%-5% after the speech made the day before by Ben Bernanke, chairman of the U.S. Federal Reserve, who said there were major risks over economic prospects. Investor fears over the world’s largest economy stepping back into recession dragged the main Wall Street index, S&P 500, down 2.9%.
Rating agency Moody’s also announced it had downgraded major banks, such as Citigroup, Bank of America and Wells Fargo, while S&P cut the rating of seven other Italian banks amid the sovereign debt crisis.
“These corrections have been anticipated by a series of foreign analysts. As long as problems of state overindebtedness linger, markets can be shaken, and I don’t rule out the possibility of the S&P 500 index falling below 1,000 points for a short while,” says Adrian Lupsan, deputy general manager of broker Intercapital Invest.
“The only remedy for the current situation would be to take radical steps both in the U.S. and in Europe, I am thinking of a major bailout, of around EUR1,000 billion or even more to the European banking sector, which should help the markets move in a positive direction,” he adds.
“I don’t think, though, that Greece will be left to enter technical default, and other measures will be taken, such as rescheduling debts, but banks will still stand to suffer and will require major amounts. So far there has been no political will to solve the problems and probably only a market panic will determine politicians to act. It is enough for global markets to reach new lows for a new panic to break out. We are entering an area of extreme volatility,” Lupsan believes.
Andrei Anghel, general manager of investment consultancy firm Start Trade Consult, says the stock exchange progression will depend on the authorities’ answers on the issue of debts.
“The market declines reflect the investor nervousness and pressure that the European Central Bank and the main governments are under to take a concrete decision on sovereign debts. An almost unavoidable default of Greece will probably be the factor that will bring together European interests in order for such a situation not to occur again,” says Anghel.
(English version by Daniela Stoican)