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Global market meldown
Published Monday, August 8, 2011 5:09PM MDT
The world's financial markets melted down on the first full day of trading since the United States took a hit to its credit rating.
All North American markets dropped sharply on Monday morning as investors looked for safer bets at a time of extreme financial uncertainty.
The Toronto Stock Exchange lost several hundred points Monday, as fellow markets around the world were hammered and investors fretted about debt issues on both sides of the Atlantic Ocean.
By midday, the S&P/TSX composite index was down nearly 300 points, following a net loss of nearly 800 points the week before. The TSX Venture Exchange tumbled as well, losing nearly 109 points. The Canadian dollar fell more than a cent to 100.97 cents US, just above par.
In New York, the Dow Jones industrial average also took a beating Monday, losing 2.5 percent in trading as of noon, while the S&P index dropped 3.2 percent and the NASDAQ composite index fell 3.3 percent.
Amid the volatility in the markets, U.S. President Barack Obama held a hastily arranged news conference to try to allay investors' fears.
"There will always be economic factors that we can't control: earthquakes, spikes in oil prices, slowdowns in other parts other world," Obama said around 2:00 p.m. ET. "But how we respond to those tests, that's entirely up to us. Markets will rise and fall, but this is the United States of America, and no matter what some agency may say, we've always been and always will be a AAA country."
Obama's reference to his nation's former credit rating was a shot at credit rating agency Standard and Poor's and its decision to downgrade the U.S. debt rating on Friday from its highest rating, AAA, to AA+, a notch below. It was the first such downgrade the U.S. has received since the agency began evaluating the nation's debt nearly a century ago.
Obama acknowledged the seriousness of the country's growing debt and deficit problems. However, he said, Congress must also get to work on specific reforms that will create jobs and boost the economic recovery.
Obama called on lawmakers to extend a payroll tax cut into next years, "so workers have more money in their pay cheques next year, and businesses have more customers." He also called for an extension of employment insurance benefits, and repeated calls for a rollback of tax breaks for the wealthiest Americans.
"These aren't democratic proposals, these aren't big government proposals," Obama said. "These are all ideas that traditionally Republicans have agreed to countless times in the past. There's no reason why we shouldn't act on them now. None."
The losses seen in Toronto and New York imitated markets around the world, as investors ditched stocks and sought safe havens for their money.
In Calgary, financial institutions have been fielding a lot of calls as they watch the markets closely.
Financial Planner, Sterling Rempel says investors should not panic.
"it's always dangerous to make a knee-jerk reaction because of the consequences of that. And at the time when most people are saying, ya know I can't take it anymore, get me out at any price. Often that's the near the bottom of the market," said Rempel, "Absolutely stay calm."
Other market drops during Monday's trading:
- Britain's FTSE 100 fell 2.7 percent
- France's CAC-40 fell 3.6 percent
- Germany's DAX fell 4 percent
- The Athens Stock Exchange fell six percent
- Japan's Nikkei fell 2.2 percent at the end of the day
- Hong Kong's Hang Seng also fell 2.2 percent
- South Korea's Kospi fell by 3.8 per cent
- China's main exchange also fell 3.8 percent
Finance ministers and central bank governors from G20 countries issued a group statement Monday saying they were committed "to take all necessary initiatives in a coordinated way to support financial stability and to foster stronger economic growth."
During the last market meltdown in 2008, Alberta lost more than a billion dollars from its rainy day fund.
"I am certainly concerned about what's happening down south and that's why our plans working with the private sector and access more markets around the world, especially Asia. We have been quite fortunate, since the free trade agreements, that Americans were strong economically and were our number one purchaser for exported products. They bought about 80 per cent of our products," said Premier Ed Stelmach. "I'm confident that Americans will recover but it'll take many many years to do that and we can't wait for that. My responsibility as the trustee on your behalf, because you're the owners of the resource, is to get the best price possible and that's in the Asian markets today," he went on to say.
Alberta government financial officers say it's too early to tell how the recent plummet will affect Alberta.
The damage won't be known until November when a second quarter financial update is announced. The first quarter update will be later this month.
Investors were pulling out of stocks and were diving into U.S. Treasuries and precious metals.
Gold, crossed the $1700 threshold and closed at almost $1720 ounce on Monday.
The price of oil continued its months-long plummet, dropping to US$84.23 a barrel, well below the much-higher price of nearly $115 that crude sat at only three months ago.
(With files from ctv.ca, The Associated Press, and The Canadian Press )