Sharemarket slump fuels global recession fears

The Australian share market has experienced its biggest fall in two weeks, following slumps overnight on European and US markets, prompting renewed fears of another global recession.

The ASX closed 3.5% lower, shedding 149.3 points to finish on 4,101.9.

Meanwhile, the Australian dollar was trading at 103.37 US cents, down from 104.83 US cents yesterday, while all four banks were down heavily.

Mining companies were not immune to the trend, with Fortescue Metals Group down 4.8%, while major retailers were also down in line with the broader market.

According to ANZ chief executive Mike Smith, the world economy is on the brink of another economic crisis, claiming policymakers in Europe and the US have failed to show leadership in dealing with massive debt.

“Europe is frankly a mess,” Smith said today at an ANZ trading update.

“And [in] the United States… we’ve seen a crisis which was created by the partisan nature of its current politics. That’s created further concern to what was already a pretty fragile recovery.”

According to Smith, the global economy is now “very delicately poised”.

“I think further missteps from European and US policymakers really risk converting the cracks in their economies into a much deeper global system crisis, which would have worrying economic and social consequences,” he said.

In addition to the negative commentary, a Morgan Stanley report has also prompted fresh worries that the US and Europe could soon plunge into a second recession.

By early afternoon, the benchmark S&P/ASX 200 index had dropped 119 points, or 2.8%, while the All Ordinaries had fallen 119 points.

Wall Street also tumbled, with the Dow index sliding 3.7% to end the session back below 11,000 points. In Asian trade, Dow futures – down 46 points – were pointing to further weakness in US markets tonight.

“There are increasing concerns that Europe’s debt crisis may spill over into the US banking system,” ANZ analysts said in a note to clients.

“New York Fed officials have been stepping up their monitoring of large European banks operating in the US, holding extensive meetings in an attempt to gauge their vulnerability to financial pressures.”