Stock markets fell again yesterday, wiping billions of euro off share values amid concerns about the state of the global economy. Claire Shoesmithreports.
Markets fluctuated violently, with Japan, London and Europe experiencing their worst one-day falls for more than four years, and the Republic was no exception.
The turmoil led central banks to intervene throughout the day, injecting substantial amounts of cash into the system to help stabilise the markets.
The upheaval originated in the US where concerns about the sub-prime mortgage sector - where companies provide loans to customers with poor credit histories - are starting to hit the wider economy.
If current trends are maintained, it will become harder and harder for banks, firms and consumers to gain access to loans and cash, and analysts fear that in the long run this could lead to a global recession.
The severity of the situation was brought to the fore on Thursday when both the European Central Bank (ECB) and the US Federal Reserve injected billions into the banking systems in a bid to shore up the flow of cash.
The interventions, which continued yesterday, were triggered by signs of faltering confidence in banks worldwide, and in the US they marked the most radical action taken by its central bank since the aftermath of the terrorist attacks in September 2001.
Central banks in Asia, Australia and Switzerland also pumped large amounts of cash into their respective financial systems.
The Federal Reserve has promised to provide whatever funding is needed to ensure the banks are able to continue lending to each other at normal rates in the coming days.
Confidence in the global money markets has fallen amid signs that some European banks may be facing difficulties with some of their investment vehicles.
On Thursday, French bank BNP Paribas revealed it had frozen payments from three of its funds invested in the US subprime mortgage market and yesterday DWS, the mutual funds arm of Deutsche Bank, revealed a 30 per cent drop in one of its funds since the end of July.
Banks were among the largest losers around the world yesterday and as a result the Iseq index of Irish shares, which is heavily weighted towards the financial stocks, suffered more than most. The four banks account for almost 43 per cent of the Iseq's value.
AIB and Anglo Irish saw more than €1 billion wiped off their individual market values yesterday, while Bank of Ireland lost more than €700 million.
While the recent negativity is bad news for investors and pension fund holders, it may, however, spell good news for some homeowners. The markets yesterday scaled back their expectations for another interest rise next month, saying the concerns about the global economy may force the ECB to hold off.
Others said what happens in the next week or so would be crucial.
"The decision may not be based so much on macroeconomics, but on saving the financial system from a meltdown," said José Garcia Zarate, economist at 4Cast in London.
Analysts are also concerned that current problems may hurt corporate takeovers and share buybacks, two forces that have been behind the stock market's recent advances.
Many markets had reached record levels before the recent turbulence.
In London the FTSE 100 suffered its worst fall for more than four years, ending the day down 3.7 per cent. The Iseq lost 4.07 per cent.
In Asia, the Nikkei fell 2.4 per cent. In the US, markets were also trading lower.
"The overall sense here is that it's not time to get in the market, particularly in the financials," said Art Hogan, chief market analyst with Jefferies & Co in Boston. - (Additional reporting, Financial Times service, Reuters).