EU Debt Crisis, U.S. Data, and Morgan Stanley’s Revised Growth Forecasts Send Fear in Markets

By FXEmpire.com

Jitters dominated global financial markets on Thursday, where rising pessimism from the European debt crisis and the health of the European financial system spread fears among traders and led investors to shun risky assets, as equity indexes, commodities, and major currencies dropped, while worse than expected jobless claims and rising CPI inflation in the United States only added to the pessimism in markets, as investors are concerned over the outlook for global growth.

Morgan Stanley announced that it revised its growth forecasts for the global economy lower for 2011 and 2012, and signaled the U.S. and the Euro Zone economies are on the brink of recession, which intensified the rising wave of risk aversion, as investors sold higher yielding assets, and headed to safety, which pushed gold prices to rise and set a new record high above $1820 an ounce.

Moreover, the Philadelphia Fed manufacturing index was released for August, where the Philly Fed index contracted to reach -30.7, well below median estimates of 2.0 and the prior estimate of 3.2, while existing home sales fell below estimates in July, as existing home sales fell by 3.5% to an annual rate of 4.67 million, compared with median estimates of 4.90 million units, which added to pessimism in markets and sent equity indexes tumbling to the ground.

Stocks in the United States fell sharply by opening on Thursday, where the Dow Jones Industrial Average was down by nearly 4% to trade around 10,950, while the S&P 500 index was down by nearly 4.45% to trade around 1140. European stock indexes were also lower before closing on Thursday, where FTSE 100 was down by nearly 3.75% to trade at 5131 and the DAX was down by nearly 5.20% to trade around 5638.

The U.S. dollar rose against a basket of major currencies on Thursday, where the U.S. dollar index was trading at 74.19, compared with the opening level at 73.88. The Euro fell against the Dollar, where the EUR/USD pair fell to trade at $1.4301, compared with the opening level at $1.4428, and the British Pound dropped against the Dollar for the first time in five days, where the GBP/USD pair traded around $1.6450, compared with the opening level at $1.6533.

Gold prices extended the gains on Thursday to set a new record high above $1820 an ounce, as gold rose to trade around $1825 an ounce, and crude oil prices fell to trade around $83 a barrel.