Volatile Week for Global Equity Markets

Global equity markets, last week, suffered as the euro zone debt crisis escalated. For the first time since the debt crisis began more than two years, core euro zone economies, excluding Germany, came under pressure. Some positive economic data in the U.S. failed to lift sentiments as investors focused on developments in the euro zone.

Last week’s events have raised fears of a contagion. At the start of the week, yields on core euro zone economies of Netherlands, Austria and France rose sharply. Spanish yields also rose to their highest level since the creation of the euro. Yields on Spanish bonds rose as the country prepared for general elections on Sunday.  Italian yields also continued to climb even as Mario Monti took charge of the country. Market participants are hoping that Monti’s technocratic government will be able to contain Italy’s debt crisis.

As the euro zone crisis escalated, pressure mounted on the European Central Bank (ECB) to take a bigger role in resolving the debt crisis. The ECB did intervene in the bond markets by buying Spanish and Italian debt. However, the ECB continues to reject the idea of acting as a lender of last resort. Germany, the biggest and the strongest euro zone economy, is also opposed to the idea of ECB acting as a lender of last resort. Last week, French and German officials even clashed over the issue.

The ongoing debt crisis has raised serious doubts about the future of the euro. A break up of the euro zone could be disastrous for global financial markets. The crisis is now even threatening the U.S., with Fitch Ratings warning that the crisis poses a serious risk to U.S. banks.

Amid the gloom, however, there was positive news on the economic front. Economic data released last week in the U.S. indicated that the economy is strengthening. But the positive economic data was overshadowed by events in Europe.

For the week ended November 18, all three major indexes in the U.S. fell sharply even though worries eased a little on Friday. The Dow Jones ended the week 2.94% lower, the S&P 500 ended the week 3.81% lower and the Nasdaq ended the week 3.97% lower.

Bank stocks were among the biggest losers last week, with Bank of America Corporation (NYSE: BAC) falling 6.92%, Goldman Sachs Group Inc. (NYSE: GS) falling 9.58% and Morgan Stanley (NYSE: MS) falling 13.14%.

Markets in Europe and Asia also tumbled last week, with the FTSE 100 Index in London falling 3.29% and the Nikkei 225 Index in Japan falling 1.64%.

Post Written By: Ed Liston Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.