PRE-BAILOUT nerves set global markets tumbling yesterday, as investors fretted about the prospect of Greece’s looming bond swap failing as well as the broader health of the Eurozone’s economy.
The FTSE 100 lost 1.9 per cent to close at 5,765.80 points yesterday, suffering its biggest one-day fall in nearly three months, while Paris’s CAC 40 and the Dax in Frankfurt plunged 3.6 and 3.4 per cent respectively.
In the US, the Dow dropped 203 points, or 1.6 per cent, in its hardest fall this year, with the S&P and Nasdaq diving 1.6 and 1.4 per cent.
Wall Street’s anxiety gauge, the VIX, jumped about 16 per cent to near 21, above its 50-day moving average for the first time since November.
Yields on 10-year US bonds dropped from 2.02 to 1.94 per cent as nervous investors clustered around “safe haven” assets.
“Global financial systemic risk is at the forefront right now. The question is whether there will be a successful tender come Thursday of enough private bondholders to avoid the spectre of default with a capital D,” said David Dietze, investment strategist at Point View Wealth Management.
Greece is racing to sign a deal to enforce haircuts of more than 50 per cent on private bondholders by tomorrow night if it is to receive critical bailout funds and avoid a disorderly default.
Though UniCredit, Société Générale and six Greek banks yesterday threw their weight behind the initiative, Greek authorities resorted to threats of a default last night to try and obtain a deal with the required 75 per cent of bondholders in time.
The markets were also spooked by a 0.3 per cent drop in output in the Eurozone, which was revealed by official statistics office Eurostat.
Brent crude also headed lower, after news of Tehran’s softening stance helped take the sting out of oil’s recent price surge.
Iranian authorities have agreed to a new round of talks with the United States, Russia, China, France, Britain and Germany over its disputed nuclear programme and oil trade.
The price of crude for April delivery slid nearly $2 during the day to settle at $121.98 a barrel, down from near-record highs of $128 last month.
Other commodities were hit by the chilling effect of Greece, coupled with unexpectedly weak growth forecasts from China on Monday.
Copper fell 2.5 per cent to a two-week low of $8289.50 on the London Metal Exchange.
Gold fell more than two per cent to $1,674 an ounce and silver tumbled three per cent, as investors looked to the dollar as a safer place to park cash.