"Fear led to panic on European trading floors on Friday after investors watched the global market sell-off intensify, with recession fears pushing stocks to their biggest weekly fall in history," the Financial Times reported late in the day.[1]  --  The world's largest steelmakers have already annouonced massive production cuts in preparation for the oncoming decline in demand, the same paper reported in a separate story.[2]  --  Prior to this weekend's meeting of G7 finance ministers in Washington, D.C., "a stomach-churning day on Wall Street . . . saw measures of volatility reach unprecedented levels."[3] ...

1.

Markets

European equities

EUROPEAN MARKETS TUMBLE AS FEARS INTENSIFY
By Rachel Morarjee

Financial Times (London)
October 10, 2008

http://www.ft.com/cms/s/0/a1045c7a-96a9-11dd-8cc4-000077b07658.html

Fear led to panic on European trading floors on Friday after investors watched the global market sell-off intensify, with recession fears pushing stocks to their biggest weekly fall in history.

“The dramatic falls in Asia and the U.S. have sent a shockwave effect [through] Europe,” said Joshua Raymond, chief strategist at Citi Index.

Indices across the continent saw dramatic falls with the pan-European FTSE Eurofirst 300 down 7.6 per cent to 851.23 bringing its losses for the week to 22 per cent. Frankfurt’s Xetra Dax fell 7 per cent to 4,544.31, while the CAC 40 in Paris lost 7.7 per cent to 3,176.49.

“This is a crash. It is total meltdown,” said Philippe Gijsels, equity strategist at Fortis Global Markets.

Banks were again heavily sold. Anglo Irish Bank nosedived 55.7 per cent to €2.25, Bank of Ireland tumbled 48.5 per cent to €2.50, while Germany’s Deutsche Bank fell 41 per cent to €31.23 and Switzerland’s Credit Suisse sank 40.3 per cent to SFr34.26.

Austrian regulators shut the country’s stock market on Friday, after sharp falls in banking stocks all week. Raiffeisen International plunged 48.5 per cent to €27.20, while Erste Bank was 42.3 per cent lower at €22.20. Erste said it had €300m exposure, while Austrian co-operative bank Raiffeisen Zentralbank, the parent of listed Raiffeisen International, declined to say how much Icelandic debt it held.

Insurance companies were also swept lower by the selling hitting financials, with Aegon of the Netherlands down 45.7 per cent to €3.52, Switzerland’s Swiss Relosing 38.7 per cent at SFr37.66, and Austria’s Vienna Insurance Group falling 34.7 per cent to €24.50.

Oil demand projections from the International Energy Agency caused fresh selling in the crude futures market. The IEA said global demand would grow far less than forecast this year and in 2009 as rich oil importers risked going into recession.

This weighed heavily on big oil producers as the oil price weakened this week. France’s Total slipped 22.2 per cent to €33.18 and Norway’s StatoilHydro slid 18.4 per cent to NKr110.20.

Recession fears also knocked commodities stocks with French-listed steelmaker ArcelorMittal down 34.1 per cent to €21.91.

Those sectors traditionally considered as defensive against stock market turbulence were not spared.

“The processes of forced liquidation of even safe haven assets highlights the degree of ‘stress’ in the system right now,” said Charles Diebel at Nomura.

Utilities were among the worst hit. Germany’s E.ON fell 28.3 per cent to €25.32, France’s GDF Suez shed 34 per cent to €24.29 and Finland’s Fortum dropped 30.5 per cent to €16.30

Pharmaceutical stocks also lost ground. France’s Sanofi-Aventis shed 23.5 per cent to €37.92, while Swiss group Novartis shed 21.34 per cent to SFr48.10.

2.

Companies

Energy utilities mining

SEVERSTAL PLANS STEEP PRODUCTION CUTS
By Catherine Belton (Moscow) and Rebecca Bream (London)

Financial Times (London)
October 10, 2008

http://www.ft.com/cms/s/0/2fcec6c6-9695-11dd-94fa-000077b07658.html

Severstal, Russia’s biggest steelmaker, said on Friday it was cutting back steel production by as much as 25 per cent at its biggest plant in Russia, and by 30 per cent at its plants in the U.S., because of slowing demand.

The moves come as other steelmakers worldwide consider production cuts in response to slumping demand, with the credit crisis hitting customers in industries such as construction and car making.

ArcelorMittal, the world’s largest steelmaker, last month signalled its readiness to cut output by up to 15 per cent as prices fall, and expectations are growing that several big Chinese steelmakers could cut production by 20 per cent.

Severstal said it would slash crude steel production this month by 25 per cent at its biggest Russian plant, Cherepovets, and output by 30 per cent at its plants in the U.S. and Italy. It also said it was considering job cuts. The move follows production cuts of at least 15 per cent by rival Russian steel mill Magnitogorsk Iron and Steel Works, which also said it could cut staff by 3,000.

Severstal, controlled by Alexei Mordashov, has spearheaded a Russian expansion into global assets in recent years. Analysts said ambitions for further expansion would likely be curtailed as credit lines close. Severstal has about $1.4bn in short term debt and $3.6bn in long term debt, according to Elena Anankina, corporate credit analyst at Standard and Poor’s in Moscow. Ms. Anankina said that the company’s large cash flow and cash reserves make it unlikely it will have any problems paying off the loans.

Michael Kavanagh, metals and mining analyst at Uralsib investment bank in Moscow, said other Russian steelmakers were likely to follow suit in slashing production.

“Demand has softened substantially for steelmakers around the world,” he said. Most, he added, however, would probably take a “wait and see approach” because “nobody really knows what they’re talking about yet.”

He added that a synchronized approach by the world’s largest steelmakers to production cuts could help halt the slide in prices as similar action did in 2005 and 2006.

Russian steelmakers will be hit in particular by a slowdown in the country’s car industry, which has expanded rapidly in recent years. Elsewhere, steel prices are being depressed by fears that China’s urbanization and industrialization will slow down as a result of the credit crunch. This has had a knock-on effect in commodities that supply the steel industry, such as iron ore and nickel, where prices have crashed in the past month.

3.

In depth

Global financial crisis

MARKET CRASH SHAKES WORLD
By John Authers (New York), Chris Giles and Krishna Guha (Washington), and Neil Hume (London)

Financial Times (London)
October 10, 2008

http://www.ft.com/cms/s/0/a0eac1e2-96f0-11dd-8cc4-000077b07658.html

U.S. stock prices suffered their worst weekly loss in history on Friday, prompting a pledge from global policymakers to implement an aggressive but broad-brush plan to combat the financial crisis.

Finance ministers and central bankers meeting in Washington said they would use “all available tools” to prevent the failure of any systemically important banks after a day of virtually indiscriminate selling in Asia and Europe and unprecedented volatility in the U.S.

The Dow Jones Industrial Average fell as low as 7,882.51 and rose as high as 8,901.28 before closing down 1.5 per cent at 8,451.19. For the week, its 18.2 per cent fall was the worst ever.

Policymakers from the Group of Seven nations said they would take “urgent and exceptional action” to stem the financial crisis, though stopped short of adopting a specific and uniform set of policies that would individually bind all its member countries.

The communiqué also did not include a wholesale adoption of a common policy such as the U.K. plan to guarantee interbank lending. “Different countries have different financial systems,” Hank Paulson, U.S. Treasury secretary, said after the meeting.

The G7 said its tools to prevent failure of “systemically important financial institutions” would be tailored for each country, including recapitalizing banks, ensuring strong deposit insurance to protect savers and restarting frozen credit and mortgage markets.

Mr. Paulson firmed up the U.S. intention to invest directly in troubled financial institutions, announcing a “standardized program” of purchases of non-voting stock that would be designed to encourage private capital also to come forward.

The G7 communiqué followed a stomach-churning day on Wall Street that saw measures of volatility reach unprecedented levels.

The main volatility gauge, the Chicago Board Options Exchange’s Vix index, rose above 75, having never even breached 50 before this week. At its low point yesterday, the Dow was down as much as 23.64 per cent for the week .

During the week of the Great Crash of 1929, the Dow lost 23.62 per cent at its worst point before ending the week down 9.2 per cent. Losses in other major markets were more severe than in the U.S. The U.K.’s FTSE 100 lost 21 per cent, the FTSE Eurofirst 300 22 per cent and Japan’s Nikkei 225 24.3 per cent.

“The events we’ve seen this week represent a once-in-a-generation increase in risk aversion and total lack of faith in the financial system surviving in its current state,” said Graham Secker, equity strategist at Morgan Stanley in London.

Confidence was shaken when investors bid 8.625 cents on the dollar for credit derivatives linked to the debt of the Lehman Brothers, which sought bankruptcy protection last month.

Trading was halted in several stock markets, including Russia.