Profit warnings, plunging oil prices and more evidence that the British economy is in recession sent European markets falling by more than 6 per cent Friday as the global sell-off picked up momentum.

The rout began in Asia, with the Japanese markets hitting their lowest level in five years, and tore apart the European markets today. No sector was left unscathed. Even a decision by OPEC to reduce supply by 1.5 million barrels a day, starting in November, was not enough to stop the oil price slide as investors apparently concluded the economic slowdown was going from the shallow to potentially severe.

Oil prices fell about 7 per cent, to about $63 (U.S.) a barrel, on the New York Mercantile Exchange after OPEC announced the decision.

Investors were rattled by grim corporate announcements in several industries. A profit warning by Air France-KLM, Europe‘s biggest airline, sent the shares down by more than 5 per cent. The airline said that “taking into account current economic conditions, it will be very difficult for the group to achieve its objective of operating income for this financial year of €1-billion.”

As Air France shares were sinking, IATA, the airline industry association, said airline companies got hit with “alarming drop” in passenger and freight traffic in September, with worse to come.

European auto stocks got hammered. Peugeot of France announced “massive” production cuts. Volvo, the Swedish truck maker, shocked the market when it reported it has received net orders for only 115 trucks in Europe for the third quarter. A year ago, the figure was almost 42,000.

The DJ Euro Stoxx 50 index fell 196 points, or 8 per cent, to finish at 2255.4. Most other indexes lost between 6 per cent and 8 per cent.

Recession fears in Britain rattled confidence throughout Europe. Britain’s Office of National Statistics said GDP dropped 0.5 per cent in the second quarter, the first contraction in 16 years. Economists had predicted a 0.2 per cent decline. While the British economy is not officially in recession, normally defined by two quarters of successive negative growth, economists think a recession is unavoidable.

In response to the GDP number, the pound fell as much as 2.5 per cent against the dollar, taking it to $1.527, its lowest level since August 2002. The grim economic data prompted BNP Paribas to predict a full-point interest rate cut from the current 4.5 per cent next month.

source:  www.theglobeandmail.com