While US markets rest for MLK Day, stock markets around the world are tumbling over fears of a U.S. recession. The FT is describing a "panic":

Indian shares tumbled as much 11 per cent before recovering a little to end the day 7.4 per cent down, Hong Kong closed 5.5 per cent down – its biggest fall since the aftermath of the September 11 attacks – and Japan’s Nikkei average slid by nearly 4 per cent to its lowest level for more than two years.

Share prices in mainland China fell by 5.14 per cent, their biggest one-day drop in nearly six months. Investors in China worried that the country’s apparent immunity to credit problems in the US may be ending.

Chinese banking stocks were hurt on Monday by speculation they will have to make much larger writedowns on holdings of US subprime mortgage securities than originally thought.

Leading European markets suffered their worst one-day percentage points falls since September 11, 2001. The Xetra Dax slumped 7.2 per cent to 6,790.19, while the CAC-40 dropped 6.8 per cent to 4,744.45. The Madrid stock market closed down 7.5 per cent at 12,625.8, its worst one-day percentage points fall since 1991.

In London, the FTSE 100 lost 5.5 per cent to 5,578.2, its biggest ever slide in points terms since the index was formed in 1983.

In my Securities Regulation course, we begin each class with a brief look at the markets, and we discuss possible causes and effects. How do you explain this? Again, the FT:

Some analysts said equity markets have finally realised that the credit market turmoil is spilling over into the real economy. The sharp sell-off in Asia and Europe was not prompted by one immediate catalyst and the US market was closed for holiday.

Translation: we have no idea what happened.

Both the FT and the W$J point to Fitch's downgrading of ratings on bond-insurance companies as one source of concern, but no one seems to think this was the principal or only trigger. W$J also cites  a "general fear of economic slowdown."

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