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Global stock sell-off highlights financial parasitism

By

Barry Grey

25 January 2014

Stock markets around the world plunged Friday as emerging market currencies hit record lows. The rout on financial markets began Thursday and intensified Friday, triggered by a report showing a slowdown in the growth of Chinese factory output and anxiety over the impact of a further cutback in the US Federal Reserve’s multi-billion-dollar bond-buying program.

Stock prices plummeted from North America to Europe, Asia and South America. In the US, the Dow Jones Industrial Average fell 318 points (-1.96 percent) to close at 15,879, ending below 16,000 for the first time since December 17. On Thursday, the Dow fell 176 points. For the week, the blue chip index dropped 579 points, its worst point drop since September of 2011.

The broader Standard & Poor’s 500 stock index fell 38 points (-2.09 percent), ending below 1,800 for the first time since December 17. The tech-heavy Nasdaq composite index declined 90 points (-2.25 percent).

Trading volume was sharply higher than in previous weeks and the markets closed at session lows, suggesting a further sell-off to come.

In Europe, all of the major country indexes fell sharply. Britain’s FTSE declined 1.6 percent; Germany’s DAX dropped 2.5 percent; France’s CAC fell 2.78 percent; Greek stocks fell 3.21 percent. The composite Stoxx Europe 600 index dropped 2.4 percent, adding to Thursday’s 1.0 percent slide. The index was down 3.3 percent for the week.

In Asia, Japan’s Nikkei fell 1.94 percent; Hong Kong’s Hang Seng was down 1.3 percent; the Jakarta Composite dropped 1.31 percent.

In Latin America, Argentina’s stock index plunged 3.93 percent and Brazil’s fell 1.1 percent.

The financial turmoil was sharpest in the so-called “emerging market” economies, including China, India, Brazil, Turkey, Russia and South Africa. The iShares MSCI Emerging Markets exchange-traded fund, which tracks emerging market stocks, plunged 2.1 percent on Friday after falling 2.5 percent on Thursday, to close at a four-and-a-half-month low.

The decision of the Fed to begin cutting back its money-printing, bond-buying program, combined with slowing growth in China and fears of deflation in Europe, has destabilized economies around the world that experienced rapid growth on the basis of massive inflows of speculative, “hot” money from banks and hedge funds in the US, Europe and Asia.

The Fed’s policy of keeping interest rates at near-zero and pumping $85 billion a month into the financial markets by purchasing US Treasuries and mortgage-backed securities cheapened the US dollar and lowered US interest rates relative to those in “emerging [. . .]

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