For years, investors could benefit from the help of the central banks: they sprinkled with cheap money, so that interest rates remained low and investing with borrowed money was very cheap. That reports Business Insider.
However, with the US Central Bank (Fed) gradually raising interest rates and the European Central Bank (ECB) having similar plans, nervousness is mounting.
Interest rates on bond markets are moving upwards, leading to unrest among equity investors. Higher interest costs in principle lead to higher borrowing costs for listed companies. And that means that turnover must grow rapidly to ensure that higher interest rates do not bite into profits.
Interest ghost
The 'interest specter' clearly appeared on Wednesday, October 10, as the US stock markets had to contend with significant falls. The most important indicators in New York had their biggest loss in months.
It was striking that US President Donald Trump spoke about the stock market fall by criticizing the Fed's rate hikes. It is customary for a president to respect the independence of the bank by not commenting directly on the policy. Trump clearly doesn't care.
The Dow Jones Industrial Average closed 3,2% lower at 25.598,74 points and the S&P 500 lost 3,3% to 2785,68 points. The last time this indicator recorded such a solid loss was in February. Technology stock Nasdaq fell 4,1% to 7422,05 points.
Asian stocks also plummet
The Japanese stock market closed sharply lower on Thursday, October 11, falling to its lowest level in 1 month. Elsewhere in the Far East, the stock markets also fell sharply in the wake of the hefty price losses on Wall Street.
The Nikkei index in Tokyo lost 3,9% and closed at 22.590,86 points. Yaskawa Electric lost 6,5%. Other Japanese companies, which, like Yaskawa Electric, derive a lot of turnover from China, were also sold. Competitor Mitsubishi Electric dropped more than 5% and robot maker Fanuc lost 6,8%.
The stock market in Shanghai was in the red with 4,6% and in Hong Kong the Hang Seng index saw the value evaporate 3,7%. In addition, €1 was worth $1,152, up from $1,1539 at the close of European markets earlier in the day. In addition, 1 barrel of US oil became 2,8% cheaper ($72,85). The price of 1 barrel of Brent oil fell 2,7% to $82,71.
- Donald Trump
Italy worry child in Europe
On Wednesday, October 10, the European stock markets also suffered heavy price losses. Investors sold off lots. In addition to the widespread concern about rising interest rates, Europe is specifically struggling with the Italian budget plans.
Italy is left with a skyrocketing government debt of 132% of national income (gross domestic product) and the populist government wants it budget deficit increase to 2019% in 2,4. The financial markets are concerned that the government debt will rise further as a result, with a possible euro crisis on the horizon.
Also not reassuring is the fact that Matteo Salvini, the interior minister, has suggested that Italy should entice its residents to buy government bonds for a tax discount. Salvini spoke about the plan, which is unusual for governments, in an interview with public broadcaster RAI. The plan is said to have already been included in the coalition agreement.
The prices of Italian government bonds have fallen sharply this year, which means that interest rates are rising. Investors, like the European Union (EU), fear that Italy is doing too little to reduce its debt mountain. On Thursday 11 October, the market interest rate for Italian government paper with a 10-year maturity was 3,5%.
AEX loses
The Amsterdam AEX index ended Wednesday, October 10, 1,7% lower at 528 points. And on Thursday, October 11, at the opening of the stock exchange, more than 1% fell here, as a result of which the AEX traded at 519 points. Since October 3, the Amsterdam main index has lost 6%.
The value of cryptocurrencies, such as bitcoin, is not spared. Cryptocurrencies have long been seen as a 'safe haven'. In such cases, investors often put their money in gold. "The days of cryptos as a safe haven and as a standalone investment seem numbered," a Hong Kong crypto trader told Business Insider.
Bitcoin fell in value by $11 in half an hour on Thursday, October 250 and traded for about $6.300 according to trading platform Coinmarketcap. Other cryptocurrencies fell even faster proportionally.
Read more on Business Insider:
- This will be Italy's new prime minister
- 9 important things happening in the world right now
- Shell shareholders vote against stricter environmental targets
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