World Economy

World Stocks Slump

World Stocks SlumpWorld Stocks Slump

Global stock markets slumped as traders expressed unease over central bank policy and Britain’s looming referendum on EU membership.

After a healthy run of gains for stocks helped in part by a recovering oil market, European indices were down between by over 2%, a day after European Central Bank chief Mario Draghi called for political action to help kickstart eurozone growth, AFP reported.

His comments were taken as a sign that the ECB’s arsenal is running low following its unprecedented stimulus program launched this week.

Wall Street opened nearly half a percentage point lower following sharp European weakness, before drifting further down.

Federal Reserve boss Janet Yellen has indicated that the US central bank is unlikely to lift interest rates until the final quarter of 2016 following weak jobs data from the world’s biggest economy.

Adding to markets’ unrest are fears that a Brexit vote on June 23 could unleash a wave of turmoil across world indices.

“The economic impact of the EU vote is riding high in investors’ minds as they try to assess how it will affect the UK, European and global market outlook over the coming months,” said Dave Jeal, head of investment products at stockbroker Interactive Investor.

  Investors More Cautious

“The direction of the next US interest rate decision looks clear, but the uncertainty over its timing and continuing concerns over global market growth, added to the Brexit decision, make this a time for more cautious investors to take a back seat,” he added.

Around 1335 GMT, the main indices in London, Frankfurt and Paris had all lost more than 2%.

Milan’s main index even slumped 3% shortly after New York’s open.

Europe’s main markets had already retreated by more than 1% on Thursday as Draghi again urged politicians to step up in efforts to breathe new life into the tepid eurozone economy.

The British pound lost ground against both the dollar and the euro.

Market focus was starting to turn toward next week’s monetary policy meetings of the US and Japanese central banks.

The Bank of Japan earlier this year adopted a negative interest rate policy, following a similar move in 2015 by the ECB, in a bid to nurture investment.

But the move has been criticized as being ineffective.

Investors worldwide are now becoming concerned about sharp inflows into bond markets, which have become a safe haven investment, pushing yields to record lows.

This, analysts say, makes the fixed-income markets vulnerable to possibly sharp losses should central banks reverse their current low-rate policies.