August 2011 stock markets fall
Encyclopedia
The August 2011 stock markets fall was the sharp drop in stock prices in August 2011 in stock exchange
s across the United States
, Middle East
, Europe
and Asia
. This was due to fears of contagion of the European sovereign debt crisis to Spain
and Italy
, as well as concerns over France's
current AAA rating, and concerns over the slow economic growth
of the United States. Severe volatility of stock market indexes continued into November.
Keynesian economists, such as Paul Krugman
have pointed to austerity and a lack of stimulus measures within Europe and the United States being largely responsible for the rise in unemployment and the fall in economic growth in 2011.
downgraded
America's credit rating
from AAA to AA+ on August 6, 2011 for the first time. The US had a AAA rating since 1941. Standard and Poor's said that it could go down further than AA+, with Moody's
also warning of a potential downgrade of the government's credit rating.
and Japanese Yen
, also considered to be safe investments.
Japan: On August 4, the Japanese government
intervened in currency markets in order to combat the overvalued state of the Yen by spending between ¥400 billion and ¥500 billion to help achieve and maintain an exchange rate of roughly US$1 to ¥80, a level seen as crucial to help exporters compete.
Thailand: On August 8, the SET Index dropped by 15.19 points (1.39%) to 1,078.19 points, with the SET50 Index and SET100 Index
revealing a drop of 11.04 points (1.45%) to 750.11 points and 24.55 points (1.48%) to 1,636.53 points respectively. Trading on August 9 saw greater slides, with the SET Index revealing 35.65 points (3.31%) down to 1,042.54 points, and similar results from the SET50 Index showing 25.19 points (3.36%) down to 724.92 points and the SET100 Index with 56.10 points (3.43%) down to 1,580.32 points.
Early Modern France: The CAC40 fell by 20% in two weeks. It fell by 5.5% on 18 August 2011. The CAC thus moved from 3.800 points to 3000 points in 10 days.
Germany: The DAX
fell by 5.8% on 18 August 2011.
Switzerland: Facing pressure of the Swiss Franc
from currency markets who see the currency as a safe haven, the Swiss National Bank
announced August 3 cuts on three-month LIBOR interest rates down to near-0 and injected 50 billion more francs into the market to stem off the threat to the economy and price stability of the "massively overvalued" currency. The Swiss franc was successfully weakened by 1.9% to 1.1033 for the Euro and 1.1% to 77.04 centimes for the US dollar on August 4. But continued interest by foreign investors to buy Swiss francs, especially after the announcement of the Federal Reserve to freeze US interest rates for 2 years, led to record high strength of the Swiss franc of 70.85 centimes to the US dollar on August 9.
Turkey: On August 5, the Turkish central bank
announced the auction of US$50 million in an effort to protect the Turkish Lira
after the currency lost value due to benchmark interest rate cuts, with other daily foreign exchange auctions of US$60 million on August 8 and US$70 million on August 9. Overnight borrowing rates were increased from 1.5% to 5%, along with lending rates for deposits of the US dollar and Euro
reduced in order to boost foreign exchange liquidity.
United Kingdom: The FTSE 100 Index
fell from over 5,900 points on July 26 to under 4,800 at 9:35 a.m. on August 9, its lowest level since July 2010. On 18 August 2011, it fell 4.5%. On 22 September 2011, the FTSE 100 fell 4.7%, the largest daily fall since 2 March 2009.
United States: On August 8, the S&P 500
lost 79.92 points (6.7%) to 1,119.46 points with all 500 stocks falling, with the Dow Jones Industrial Average
dropping 634.76 points (5.6%) to 10,809.56 points and the NASDAQ Composite
falling 174.72 points (6.9%) to 2,357.69 points, contributing to an approximate US$2.5 trillion erased from global equity value; a total of US$7.8 trillion since July 26.
Canada: On August 4, the Toronto Stock Exchange
lost 435.90 points or 3.4% following the American markets and fear of overseas debt problems. With the Finance Minister's re-assurance of the strong Canadian banking system, and the Bank of Canada maintain the same interest rate, the S&P/TSX Composite Index faired much better than other markets. On the 6th of August, the market fell to its lowest point of 11,670.96, and by the 15th of August, it had recovered almost all of its losses going back to 12,693.61. This was partly due to the high number of resource companies listed on the TSX gaining due to soaring commodity prices such as gold.
closing at 4.4% after plunging more than 5% before rebounding, seeing the Abu Dhabi Securities Exchange
fall 2.53% by closing. The Saudi markets experienced early trading losses of 5.46% before recovering and closing at a loss of 0.88%. The Qatar Exchange closed at 2.51% after falling 3%, with the Tel Aviv Stock Exchange
shedding 6.04%.
Trading on August 9 led to more losses, as the EGX30 fell to a 5% low, prompting a 30-minute freeze on activity, before recommencing with a drop to 5.75%, followed by a steady rebound to close at 4.75% down with 4,478 points. The Saudi markets experiencing similar loss to 4.27%, while Dubai and Abu Dhabi closed at a lower 1.95% and 1.34% dip respectively.
Australia: On August 8, the Australian Securities Exchange
saw nearly AUD
$35 billion of share value lost, with a plunge of 2.9% as panicked investors led share prices down into bear market territory, pressuring investors of high exposure to dump shares in favour of margin calls
.
Trading on August 9 revealed a 5.5% drop at its worst point before recovering rapidly in closing with 268 points gain, with the ASX200
index
ending with an overall gain of 48.7 points (1.22%) at 4034.8 points. Traders attributed the sudden recovery to an intervention by the Korean
and Taiwanese governments. For the first time in 5 months (since March 2011), the Australian Dollar fell below parity with the US Dollar to 99.28¢ before recovering to 101.85¢ in afternoon trade (but 1.5% below Monday's close), seeing the Australian Dollar's longest losing streak since the currency was floated in 1983.
, France
, Greece
, Italy
, Spain
: On August 11 (with the exception of Greece on August 8), the market authorities of Belgium, Italy, France and Spain as well as the European financial regulator ESMA
announced the ban of all forms of short selling
on banks and other financial companies as a result of growing instability in markets on rumours of French banks risking downgrades and concerns of various European banks that are highly exposed to indebted nations such as Greece.
Stock exchange
A stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...
s across the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, Middle East
Middle East
The Middle East is a region that encompasses Western Asia and Northern Africa. It is often used as a synonym for Near East, in opposition to Far East...
, Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
and Asia
Asia
Asia is the world's largest and most populous continent, located primarily in the eastern and northern hemispheres. It covers 8.7% of the Earth's total surface area and with approximately 3.879 billion people, it hosts 60% of the world's current human population...
. This was due to fears of contagion of the European sovereign debt crisis to Spain
Spain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...
and Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
, as well as concerns over France's
Economy of France
France is the world's fifth largest economy by nominal figures and the ninth largest economy by PPP figures. It is the second largest economy in Europe in nominal figures and third largest economy in Europe in PPP figures...
current AAA rating, and concerns over the slow economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
of the United States. Severe volatility of stock market indexes continued into November.
Keynesian economists, such as Paul Krugman
Paul Krugman
Paul Robin Krugman is an American economist, professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University, Centenary Professor at the London School of Economics, and an op-ed columnist for The New York Times...
have pointed to austerity and a lack of stimulus measures within Europe and the United States being largely responsible for the rise in unemployment and the fall in economic growth in 2011.
Downgrading of US's credit rating
Standard & Poor'sStandard & Poor's
Standard & Poor's is a United States-based financial services company. It is a division of The McGraw-Hill Companies that publishes financial research and analysis on stocks and bonds. It is well known for its stock-market indices, the US-based S&P 500, the Australian S&P/ASX 200, the Canadian...
downgraded
United States federal government credit-rating downgrade, 2011
Credit rating agency Standard & Poor's downgraded its credit rating of the U.S. federal government from AAA to AA+ on August 5, 2011.This was the first time the government was given a rating below AAA. S&P had announced a negative outlook on the AAA rating in April 2011...
America's credit rating
Credit rating
A credit rating evaluates the credit worthiness of an issuer of specific types of debt, specifically, debt issued by a business enterprise such as a corporation or a government. It is an evaluation made by a credit rating agency of the debt issuers likelihood of default. Credit ratings are...
from AAA to AA+ on August 6, 2011 for the first time. The US had a AAA rating since 1941. Standard and Poor's said that it could go down further than AA+, with Moody's
Moody's
Moody's Corporation is the holding company for Moody's Analytics and Moody's Investors Service, a credit rating agency which performs international financial research and analysis on commercial and government entities. The company also ranks the credit-worthiness of borrowers using a standardized...
also warning of a potential downgrade of the government's credit rating.
Gold
Gold has witnessed a significant increase in value of up to USD$1750, a $250 increase since last week and 23% surge this year thus far. Gold is typically considered a secure investment in times of economic uncertainty, with other investors and traders also investing in foreign currencies, such as the Swiss FrancSwiss franc
The franc is the currency and legal tender of Switzerland and Liechtenstein; it is also legal tender in the Italian exclave Campione d'Italia. Although not formally legal tender in the German exclave Büsingen , it is in wide daily use there...
and Japanese Yen
Japanese yen
The is the official currency of Japan. It is the third most traded currency in the foreign exchange market after the United States dollar and the euro. It is also widely used as a reserve currency after the U.S. dollar, the euro and the pound sterling...
, also considered to be safe investments.
Asia
Japan: On August 4, the Japanese governmentGovernment of Japan
The government of Japan is a constitutional monarchy where the power of the Emperor is very limited. As a ceremonial figurehead, he is defined by the 1947 constitution as "the symbol of the state and of the unity of the people". Power is held chiefly by the Prime Minister of Japan and other elected...
intervened in currency markets in order to combat the overvalued state of the Yen by spending between ¥400 billion and ¥500 billion to help achieve and maintain an exchange rate of roughly US$1 to ¥80, a level seen as crucial to help exporters compete.
Thailand: On August 8, the SET Index dropped by 15.19 points (1.39%) to 1,078.19 points, with the SET50 Index and SET100 IndexSET50 Index and SET100 Index
The SET50 and SET100 Indices are the primary stock indices of Thailand. The constituents of both lists are companies listed on the Stock Exchange of Thailand in Bangkok.-Calculation:...
revealing a drop of 11.04 points (1.45%) to 750.11 points and 24.55 points (1.48%) to 1,636.53 points respectively. Trading on August 9 saw greater slides, with the SET Index revealing 35.65 points (3.31%) down to 1,042.54 points, and similar results from the SET50 Index showing 25.19 points (3.36%) down to 724.92 points and the SET100 Index with 56.10 points (3.43%) down to 1,580.32 points.
Europe
Early Modern France: The CAC40 fell by 20% in two weeks. It fell by 5.5% on 18 August 2011. The CAC thus moved from 3.800 points to 3000 points in 10 days. Germany: The DAXDAX
The DAX is a blue chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. Prices are taken from the electronic Xetra trading system...
fell by 5.8% on 18 August 2011.
Switzerland: Facing pressure of the Swiss FrancSwiss franc
The franc is the currency and legal tender of Switzerland and Liechtenstein; it is also legal tender in the Italian exclave Campione d'Italia. Although not formally legal tender in the German exclave Büsingen , it is in wide daily use there...
from currency markets who see the currency as a safe haven, the Swiss National Bank
Swiss National Bank
The Swiss National Bank is the central bank of Switzerland. It is responsible for Swiss monetary policy and for issuing Swiss franc banknotes.The names of the institution in the four official languages of the country are: ; ; ; ....
announced August 3 cuts on three-month LIBOR interest rates down to near-0 and injected 50 billion more francs into the market to stem off the threat to the economy and price stability of the "massively overvalued" currency. The Swiss franc was successfully weakened by 1.9% to 1.1033 for the Euro and 1.1% to 77.04 centimes for the US dollar on August 4. But continued interest by foreign investors to buy Swiss francs, especially after the announcement of the Federal Reserve to freeze US interest rates for 2 years, led to record high strength of the Swiss franc of 70.85 centimes to the US dollar on August 9.
Turkey: On August 5, the Turkish central bankCentral Bank of the Republic of Turkey
The Central Bank of the Republic of Turkey is the central bank of Turkey and is founded as a joint stock company with the exclusive right to issue banknotes in Turkey. The preparations to establish a central bank began in 1926, but organization was established on 3 October 1931 and opened...
announced the auction of US$50 million in an effort to protect the Turkish Lira
Turkish lira
The Turkish lira is the currency of Turkey and the de facto independent state of the Turkish Republic of Northern Cyprus. The lira is subdivided into 100 kuruş...
after the currency lost value due to benchmark interest rate cuts, with other daily foreign exchange auctions of US$60 million on August 8 and US$70 million on August 9. Overnight borrowing rates were increased from 1.5% to 5%, along with lending rates for deposits of the US dollar and Euro
Euro
The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...
reduced in order to boost foreign exchange liquidity.
United Kingdom: The FTSE 100 IndexFTSE 100 Index
The FTSE 100 Index, also called FTSE 100, FTSE, or, informally, the footsie , is a share index of the 100 most highly capitalised UK companies listed on the London Stock Exchange....
fell from over 5,900 points on July 26 to under 4,800 at 9:35 a.m. on August 9, its lowest level since July 2010. On 18 August 2011, it fell 4.5%. On 22 September 2011, the FTSE 100 fell 4.7%, the largest daily fall since 2 March 2009.
North America
United States: On August 8, the S&P 500S&P 500
The S&P 500 is a free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock...
lost 79.92 points (6.7%) to 1,119.46 points with all 500 stocks falling, with the Dow Jones Industrial Average
Dow Jones Industrial Average
The Dow Jones Industrial Average , also called the Industrial Average, the Dow Jones, the Dow 30, or simply the Dow, is a stock market index, and one of several indices created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow...
dropping 634.76 points (5.6%) to 10,809.56 points and the NASDAQ Composite
Nasdaq Composite
The Nasdaq Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market, meaning that it has over 3,000 components. It is highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies. ...
falling 174.72 points (6.9%) to 2,357.69 points, contributing to an approximate US$2.5 trillion erased from global equity value; a total of US$7.8 trillion since July 26.
Canada: On August 4, the Toronto Stock ExchangeToronto Stock Exchange
Toronto Stock Exchange is the largest stock exchange in Canada, the third largest in North America and the seventh largest in the world by market capitalisation. Based in Canada's largest city, Toronto, it is owned by and operated as a subsidiary of the TMX Group for the trading of senior equities...
lost 435.90 points or 3.4% following the American markets and fear of overseas debt problems. With the Finance Minister's re-assurance of the strong Canadian banking system, and the Bank of Canada maintain the same interest rate, the S&P/TSX Composite Index faired much better than other markets. On the 6th of August, the market fell to its lowest point of 11,670.96, and by the 15th of August, it had recovered almost all of its losses going back to 12,693.61. This was partly due to the high number of resource companies listed on the TSX gaining due to soaring commodity prices such as gold.
Middle East
As the Middle Eastern markets reacted first to the news of the downgraded US government credit rating, Sunday trading resulted in losses in all markets. The EGX30 closed down 4.17% on Sunday, with the Dubai Financial MarketDubai Financial Market
The Dubai Financial Market is a stock exchange located in Dubai, United Arab Emirates. It was founded on March 26, 2000.There are about 57 companies listed on DFM, most of them are UAE-based companies and a few dual listings for companies based in other MENA region countries. Many companies allow...
closing at 4.4% after plunging more than 5% before rebounding, seeing the Abu Dhabi Securities Exchange
Abu Dhabi Securities Exchange
Abu Dhabi Securities Exchange [ADSM] is a stock exchange in Abu Dhabi, United Arab Emirates . It was established on 15 November 2000 to trade shares of UAE companies. There are trading locations in Abu Dhabi, Al Ain, Fujeirah, Sharjah, and Ras Al Khaimah...
fall 2.53% by closing. The Saudi markets experienced early trading losses of 5.46% before recovering and closing at a loss of 0.88%. The Qatar Exchange closed at 2.51% after falling 3%, with the Tel Aviv Stock Exchange
Tel Aviv Stock Exchange
The Tel Aviv Stock Exchange in Tel Aviv is Israel's only stock exchange.The TASE is the only public market for trading securities in Israel. It plays a major role in the Israeli economy....
shedding 6.04%.
Trading on August 9 led to more losses, as the EGX30 fell to a 5% low, prompting a 30-minute freeze on activity, before recommencing with a drop to 5.75%, followed by a steady rebound to close at 4.75% down with 4,478 points. The Saudi markets experiencing similar loss to 4.27%, while Dubai and Abu Dhabi closed at a lower 1.95% and 1.34% dip respectively.
Oceania
Australia: On August 8, the Australian Securities ExchangeAustralian Securities Exchange
The Australian Securities Exchange was created by the merger of the Australian Stock Exchange and the Sydney Futures Exchange in July 2006. It is the primary stock exchange group in Australia....
saw nearly AUD
Australian dollar
The Australian dollar is the currency of the Commonwealth of Australia, including Christmas Island, Cocos Islands, and Norfolk Island, as well as the independent Pacific Island states of Kiribati, Nauru and Tuvalu...
$35 billion of share value lost, with a plunge of 2.9% as panicked investors led share prices down into bear market territory, pressuring investors of high exposure to dump shares in favour of margin calls
Margin (finance)
In finance, a margin is collateral that the holder of a financial instrument has to deposit to cover some or all of the credit risk of their counterparty...
.
Trading on August 9 revealed a 5.5% drop at its worst point before recovering rapidly in closing with 268 points gain, with the ASX200
S&P/ASX 200
The S&P/ASX 200 index is a market-capitalization weighted and float-adjusted stock market index of Australian stocks listed on the Australian Securities Exchange from Standard & Poor's...
index
Index (economics)
In economics and finance, an index is a statistical measure of changes in a representative group of individual data points. These data may be derived from any number of sources, including company performance, prices, productivity, and employment. Economic indices track economic health from...
ending with an overall gain of 48.7 points (1.22%) at 4034.8 points. Traders attributed the sudden recovery to an intervention by the Korean
Government of South Korea
The Government of South Korea is divided into executive, judicial, and legislative branches. The executive and judicial branches operate primarily at the national level, although various ministries in the executive branch also carry out local functions. Local governments are semi-autonomous, and...
and Taiwanese governments. For the first time in 5 months (since March 2011), the Australian Dollar fell below parity with the US Dollar to 99.28¢ before recovering to 101.85¢ in afternoon trade (but 1.5% below Monday's close), seeing the Australian Dollar's longest losing streak since the currency was floated in 1983.
Europe
BelgiumBelgium
Belgium , officially the Kingdom of Belgium, is a federal state in Western Europe. It is a founding member of the European Union and hosts the EU's headquarters, and those of several other major international organisations such as NATO.Belgium is also a member of, or affiliated to, many...
, France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
, Greece
Greece
Greece , officially the Hellenic Republic , and historically Hellas or the Republic of Greece in English, is a country in southeastern Europe....
, Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
, Spain
Spain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...
: On August 11 (with the exception of Greece on August 8), the market authorities of Belgium, Italy, France and Spain as well as the European financial regulator ESMA
European Securities and Markets Authority
The European Securities and Markets Authority is a European Union financial regulatory institution and European Supervisory Authority located in Paris....
announced the ban of all forms of short selling
Short selling
In finance, short selling is the practice of selling assets, usually securities, that have been borrowed from a third party with the intention of buying identical assets back at a later date to return to that third party...
on banks and other financial companies as a result of growing instability in markets on rumours of French banks risking downgrades and concerns of various European banks that are highly exposed to indebted nations such as Greece.
See also
- European sovereign debt crisis
- United States federal government credit-rating downgrade, 2011United States federal government credit-rating downgrade, 2011Credit rating agency Standard & Poor's downgraded its credit rating of the U.S. federal government from AAA to AA+ on August 5, 2011.This was the first time the government was given a rating below AAA. S&P had announced a negative outlook on the AAA rating in April 2011...