Wall Street braced for wild day of trading as Asian stocks plummet and European markets waver after U.S. debt downgrade

Traders are frantically buying up the world’s gold reserves as global markets are gripped by uncertainty in the wake of the historic downgrade of the U.S.’s credit rating late on Friday night.

Asian stocks plummeted as Monday morning trades gave the first response to the downgrade of U.S. debt, fuelling concerns the global recovery is stalling.

But a pledge from the European Central Bank to support the shaky bonds of Italy and Spain helped calm investor nerves in Europe, despite the unprecedented decision by credit ratings agency Standard & Poor’s.

Though Europe’s main markets in London, Paris, and Frankfurt were trading lower, Milan and Madrid were posting gains as borrowing costs for both Italy and Spain fell to more manageable levels after the ECB said it would buy the two countries’ bonds in order to help them avoid devastating defaults.

Yields on five-year Italian and Spanish bonds fell around a full percentage point, spreads against German debt narrowed and the cost of insuring them against default dropped.

But safe-haven buying sent gold soaring to a new record above $1,700 an ounce and the dollar weakened against a basket of major currencies.

Investors were seemingly unimpressed by talks between industrialised countries aimed at safeguarding the smooth functioning of financial markets following S&P’s cutting the U.S. rating to AA-plus from AAA.

‘It won’t be long now before other ratings agencies follow suit, considering the state of the U.S.’s finances,’ said Angus Campbell, head of sales at Capital Spreads.

‘One thing is for certain, and that’s that volatility will continue to remain high, making trading conditions difficult.’ 

In the first minutes of Tokyo trading, the benchmark Nikkei index fell 101 points, or 1.1 per cent. The selloff was not as severe as Friday’s 3.7 per cent drop that followed the huge drop in U.S. stocks on Thursday.As investors and politicians nervously ready themselves for a crucial day of trading on Wall Street, U.S. stock futures tumbled around two per cent in early electronic trading.

Korea’s KOSPI index slipped 0.5 per cent. In Australia, the All Ordinaries index lost 1.8 per cent. The MSCI Asia Pacific Index slumped 0.8 per cent to 125.09 as trading opened.

S&P 500 futures fell 22.20 points, or 1.9 per cent, according to data from the Chicago Mercantile Exchange. They were down by as much as 36.80 points.

Nasdaq-100 futures contracts slipped 43 points, or two per cent. They were down as much as 58.25 points lower earlier.

Dow Jones industrial average futures were 209 points, or 1.8 per cent, lower after being down as much as 309 points earlier.

Read more at the source of this article: http://www.dailymail.co.uk/news/article-2023615/Wall-Street-braced-huge-day-trading-Asian-stocks-plunge-downgrade-U-S-credit-rating.html#ixzz1URG0JIiy