190 seconds at 9am: All hell breaks loose; European debt crisis fear turns to panic

Bernard Hickey details the key news overnight in a special edition of 190 seconds at 9am in association with the BNZ. All hell broke loose on financial markets overnight as fear about the European sovereign debt crisis turned to panic. The Dow fell as much as 998 points or almost 10% at one stage before rebounding somewhat in late trade to be down 3.5%. This was the biggest intra-day fall since 1987, although there are some reports that the near-crash over a few minutes was caused by a trading error. Markets are panicking about the prospect of massive losses by European banks if European nations such as Greece, Portugal and Spain default on their debts. Some European and US banks stopped lending overnight with other banks, particularly in Greece and Portugal. The best measure of how nervous banks are about trading with each other, the spread between LIBOR (London Interbank Offer Rate) and pure cash, blew out. Australasia's big four banks do not have the same exposures to European sovereign debt and are seen as among the strongest 10 banks in the world. The Australasian economies are also coping the best of  the developed world, thanks in large part to the strong growth in Asia and China in particular. There was a widespread flight to safety after the European Central Bank did not announce a 'shock and awe' buy back of toxic debt, effectively refusing to print money. The 'Bernanke put' has not become the 'Trichet put'. The New Zealand dollar fell briefly under 70 USc on the heightened fears about risk globally. Interest rates will rise, particularly after Alan Bollard signalled yesterday rate hikes will be used in the coming months to remove some of the monetary stimulus. Economists are expecting the Official Cash Rate will be raised on June 10. ANZ and National lifted its fixed mortgage rates last night in response.