LONDON — World stock markets dropped today as fears that mounting bank losses will deepen the world economic slump overshadowed the promises of recovery in President Barack Obama's inaugural speech.
Stock markets in both Europe and Asia opened lower after a sharp drop overnight on Wall Street, where investors returning from a holiday reacted with alarm to a rash of negative news about banks.
Even as Obama assumed power Tuesday vowing to "begin the work of remaking America," which includes a massive economic stimulus package, sentiment was dour.
In Britain, where record losses at Royal Bank of Scotland have raised fears of a nationalization of more banks, the benchmark FTSE 100 index was down 2% at 4,008.83. Germany's DAX likewise fell 2%, to 4,154.80, while France's CAC 40 dropped 2.6% to 2,849.77.
In Asia, Japan's Nikkei 225 closed down 2% at 7,901.64, while Hong Kong's Hang Seng Index shed 2.9% to 12,578.58.
"Risk aversion will not go away," said Simon Smollett, a senior strategist at Calyon in London. "We are still waiting for European stock markets to close above their previous days high. So far it has not been since Jan. 6," he noted.
With company and economic prospects seeming to darken by the day, hopes are fading the new U.S. government can bring about a quick recovery in the world's largest economy with the reconstruction promised in Obama's inaugural speech.
"While it was a great day to hope, and fun to watch a part of history, investors are very much in tune to the reality that there is not a lot this new president can do to help Asia, or the world, let alone the United States, in the very near term," said Kirby Daley, senior strategist at Newedge Group in Hong Kong.
Overnight in New York, Wall Street pitched sharply lower Tuesday as Obama took office, with the Dow Jones industrial average plummeting 332.13, or 4%, to 7,949.09, its worst-ever showing for an Inauguration Day.
Broader stock indicators also fell sharply, as the Standard & Poor's 500 index fell 44.90, or 5.3%, to 805.22.
Wall Street futures suggested U.S. markets would be mixed in trading today. Dow futures were up 5 points, or 0.1%, at 7,950 while S&P500 futures were down 0.1 point at 805.90.
Corporate news was mixed early today, with Sweden's LM Ericsson posting a 31% drop in fourth-quarter profit and announcing 5,000 job cuts. The company's shares rose because the performance was better than expected.
Meanwhile, France's Societe General said it would make a €2 billion profit in 2008, a rare piece of good news for the banking sector.
In Germany, the lender Hypo Real Estate said it would request an extra €12 billion in loan guarantees from the state to survive the credit crunch.
In Britain, official data showed unemployment reached a near 10-year high of 6.1%, while the Bank of England governor sounded a gloomy note in a speech late Tuesday, suggesting interest rate cuts may not be enough to help the economy.
In fact, the government has this week cleared the central bank to buy assets as a policy tool in its latest bailout of the banking sector.
The outlook for Asian companies also continued to deteriorate. Australia's BHP Billiton Ltd, the world's largest mining company, announced plans today to slash 6,000 jobs, or about 6% of its global work force, to cope with falling demand. In China, insurance heavyweight China Life warned its 2008 profit may be down more than 50% from the previous year.
Singapore slashed its 2009 growth forecast for a second time this month, saying the economy could shrink as much as 5%.
Benchmarks in South Korea and India retreated about 2% or more, Singapore's index was down 1.6% and Australia's stock measure lost 1%. Shanghai's main stock gauge was off around 0.5%, while Taiwan's stock measure inched modestly higher.
Joseph Yam, head of Hong Kong's de facto central bank, warned of a second round in the financial crisis.
"The effect of this round will be even more widespread and have a huge impact on the world's financial markets," said Yam, who leads the Hong Kong Monetary Authority. "We have a difficult year ahead."
In Japan, heavyweight lender Sumitomo Mitsui Financial Group Inc. fell 5.4%. China Life's Hong Kong shares tumbled 7.5%.
Analysts say markets will be closely watching the earnings report from technology company Apple Inc. for more direction later in the day.
Oil prices rose, with light, sweet crude for March delivery up 94 cents to $41.78 in European trade. The contract fell $1.53 to settle at $40.68 overnight, with the February contract expiring Tuesday.
The pound was near 7 1/2-year lows against the dollar at 1.3767. The dollar traded higher against the yen, at 89.94 yen compared with 89.87 yen late Tuesday. The euro rose to $1.2915 from $1.2876.
