Those fears now have a financial cost, as we saw in markets in Europe and the US on Friday.
Asia was ahead, but Europe and the Americas then saw big falls.
Europe’s losses accelerated, spreading to commodities such as oil and currencies such as the Aussie dollar as the US trading started.
And when the US opened, down went everything, except the US dollar and US treasuries, which became safe havens again.
The Aussie dollar finished down 1.5 US cents and closed under 90 cents.
The grim irony is that the rise in the US dollar for most of last week has been signalling to investors that there’s unease about the extent of the recovery and the rebound in markets.
Not even the apparent good news Thursday on US economic growth, and more good news Friday with Japanese unemployment falling, could offset the worries.
Driving US markets lower was the biggest fall in consumer spending for months; a report warning of huge losses for Citigroup, and more concerns about unemployment, even though the Obama Administration claimed the stimulus package had created 640,000 new jobs.
Gold fell, again proving wrong those who claim it’s a ‘safe haven’. It’s a risk investment, like equities, and the sudden upsurge in concern took everyone by surprise.
Investors went back to watching the VIX index, which is an indicator of market fears and volatility.
It had its biggest rise since October 2008, when things were really grim. It jumped 24%, an overreaction, but understandable given the way that the increasing risk levels in markets have been ignored for months.
The slide in risk appetite pushed the Japanese yen sharply higher and pulled down higher-yielding currencies linked to commodities, including the Australian and New Zealand dollars.
The Dow slid 249.85 points, or 2.5%, to end at 9,712.73; the Standard & Poor’s 500 Index dropped a hurtful 29.92 points, or 2.8% and the Nasdaq Composite Index fell 52.44 points, or 2.5% to close at 2,045.11.
Banks and financials were hit when an independent accounting analyst said Citigroup could be up for a loss of $US10 billion this quarter on certain types of tax deferred securities.
Bank of America fell 7% and JP Morgan by 5%. Other financials weakened.
The failure of nine banks in a single holding group won’t help sentiment for financials as well.
Nine subsidiaries of FBOP Corp., were taken over by rival US Bancorp.
The Federal Deposit Insurance Corp. said the nine banks in California, Illinois, Texas and Arizona that made up the privately held FBOP had combined assets of $US19.4 billion and deposits of $US15.4 billion. It was the 4th biggest failure in the US this year.
And CIT Financial went into a pre-arranged bankruptcy this morning owing $US65 billion and with assets of $US71 billion. And some big losses to follow.
CIT shares fell 24% Friday after it said it got a new $US1 billion line of credit from activist investor Carl Icahn.
CIT has been in trouble for months and its collapse would normally not worry markets. Capmark Financial fell over last week and the markets ignored that.
But after Friday’s falls and the rise in concerns about risk, who knows how US investors will treat any news of CIT going into Chapter 11?
For both the S&P 500 and the Nasdaq the falls ended seven straight months of gains.
For the week, the Dow fell 2.6%, the S&P 500 lost 4% and the Nasdaq declined 5.1% as the rebalancing of sentiment in the tech sector continued.
For the month, the Dow was up marginally, the S&P 500 shed 2% and the Nasdaq fell 3.6%.
The Canadian market fell 4.2% for the month and Brazil dropped for the week, but finished up for the month by 0.1%.
However, the Brazilian market is now in a correction, having dropped 10% since the government introduced a 2% tax on foreign share buying.
In Europe the pan-European FTSEurofirst 300 index of leading shares had its biggest monthly decline in eight months.
The Index fell 2.11% at 976.46 for the month after a 3.2% drop over last week.
The Dow Jones Stoxx 600 Index fell 3.3% for the week.
Indexes fell in 16 of the 18 western European markets. France’s CAC 40 slumped 5.3%, UK’s FTSE 100 3.8% and Germany’s DAX dropped by a hefty 5.7%, the biggest fall since February.
London’s fall was the biggest since March and the DAX had its biggest fall since July.
The Index fell 1.1% over the month.
In Asia markets bounced back on Friday after the positive US growth figures, reversing the worst fall in two months on Thursday.
That won’t last today and the losses will be large.
The MSCI index of Asia-Pacific shares outside Japan rose 2% at one stage, but that was cut in later trading as the negative tone in early European trading kicked in.
The Index lost 2.6% last week and 1.3% for the month.
It had risen for seven straight months to September.
It rose 1.5% on Friday in the wake of the US growth numbers.
For the week that Nikkei fell 2.4%, the ASX 200 fell 4.4% and Hong Kong’s Hang Seng was off 3.7%.
On Friday the ASX200 index rose 68.5 points, or 1.5%, to 4643.2 and the All Ordinaries rose 71.7 points, or 1.6%, to 4646.9.
Despite the gains on Friday, the two indexes fell in October, the first mon
