Gold prices hit fresh historic highs, the dollar fell against the euro and oil futures slumped on Tuesday, although government bond yields improved as investors dumped stocks and the European Central Bank intervened as part of its efforts to tackle the eurozone debt crisis.
Asia markets at closing Tuesday:
- Tokyo down 1.68 per cent;
- Hong Kong down 5.66 per cent;
- Seoul down 3.63 per cent;
- Shanghai down 0.75 per cent;
- Sydney up 1.22 per cent.
China, the world’s second-biggest economy, announced 6.5 per cent inflation in July, sparking fears that money supply may be tightened, causing sharp economic slowdown.
But Asian markets were also worried about crisis in the US and Europe, fearing their exports could suffer.
The lack of control on capital movements mean that Western crisis can have knock-on effects.
European markets mid-morning Tuesday:
- Germany's Dax down 5.2 per cent;
- France’s Cac-40 down 3.4 per cent;
- Britain’s FTSE 100 down 3.6 per cent.
“While freer capital mobility is welfare-enhancing in theory - as it promotes better and more efficient allocation of financial resources - large and volatile capital flows are risks and present challenges to emerging market economies,” the Asian Development Bank’s Iwan Azis said in a statement.
And Deutsche Bank analysts warned that “the Western World financial system built over the last two to three decades might be totally unsustainable”.
As the New York stock exchange prepared to open, investors were hoping for fresh cash in the US Federal Reserve’s monetary policy announcement due on Tuesday.
In Europe concern is growing over the debt ratings of Britain and especially France, which would have to make a major contribution to emergency lending to Italy and Spain if they need it.
Spanish Finance Minister Elena Salgado said Tuesday that "of course" his country couldcompletely rule out the need for a financial rescue.