MILAN — Stock markets around the world plunged Thursday as rising signs of a U.S. recession combined with renewed worries over the financial health of Europe's banks.
After a few days of relative calm in the markets, especially when compared with the huge volatility of the previous week, investors are back in an unforgiving mood as the negative newsflow culminated in a woeful manufacturing survey from the Federal Reserve Bank of Philadelphia.
Its main indicator of factory activity slid to a near two and a half year low of minus 30.7 in August from a positive 3.2 reading in July. The slide suggests a recession is well and truly in prospect in the Philadelphia region — anything below zero indicates a contraction in activity.
"This was obviously a terrible report, and, if sustained, readings like these would be consistent with recession," said Joshua Shapiro, chief U.S. economist at MFR Inc.
The woeful Philly Fed survey came in the wake of weekly jobless claims figures showing more Americans applied for unemployment benefits last week than a week earlier, and consumers paid more for gas, food and clothes last month, pushing prices up by the most since last spring.
Earlier, investor sentiment had been knocked by news from Japan that exports in July fell 3.3 percent from a year earlier to 5.78 trillion yen ($75.6 billion) as a result of the strong yen and the ongoing impact of the March 11 earthquake and tsunami. British retail sales also disappointed in July and a rebound in August looks unlikely, analysts said, following a wave of riots around England.
With so much gloomy economic news, it's hardly surprising that stocks have been on the retreat all day.
In Europe, Britain's FTSE 100 closed down 4.5 percent at 5,092.23, while Germany's DAX fell 5.8 percent to 5,602.80.France's CAC-40 ended 5.5 percent lower at 3,076.04.
In the U.S., the Dow Jones industrial average slid 3.9 percent to 10,937 while the broader Standard & Poor's 500 index fell 3.8 percent to 1,148.
The banks took a particular beating from fears over the global economic recovery combined with the prospect of a new tax on financial transactions and renewed concerns over Greece's bailout. French bank Societe Generale and British bank Barclays leading the way down, with double digit percentage losses.
"Banking stocks have been decimated across Europe, with indiscriminate selling even in banks that maintain their exposure to the crisis is slim," said Will Hedden, a sales trader at IG Index.
With investors' appetite for risk so evidently low, it's unsurprising that assets like gold and the Swiss franc were back in favor — both are considered safe haven assets for investors to park their cash.
By contrast, the euro was in retreat, trading 0.8 percent lower at $1.4312, and oil prices also tanked alongside equities. Benchmark crude for September delivery was down $4.25 to $83.33 a barrel.
Investors are keeping a close watch on developments with regard to Europe's debt crisis, after a little-noticed deal requiring Greece to put up collateral in order to receive a bailout loan from Finland triggered similar requests from several other eurozone countries. Potentially, these requests could complicate a broader (euro) 109 billion ($157 billion) Europe-wide bailout of Greece.
The Netherlands, Slovenia, Austria and Slovakia said that they were also demanding collateral from Greece.
Earlier in Asia, Japan's benchmark Nikkei 225 closed down 1.3 percent to 8,943.76 after the export figures, while South Korea's Kospi lost 1.7 percent to 1,853.08.
Hong Kong's Hang Seng shed 1.3 percent at 20,016.27, while mainland Chinese shares lost ground for a third straight trading day on concerns over a possible interest rate hike and new restrictions aimed at cooling housing prices.
The Shanghai Composite Index lost 1.6 percent to 2,559.47 and the Shenzhen Composite Index lost 1.8 percent to 1,142.91.