Global shares near bear market, S&P 500 falls to 21-month low
Yen reaches one-year high, Treasury yield drops below 2%
Turmoil returned to financial markets as oil plunged past $27 a barrel, the Dow Jones Industrial Average sank as much as 565 points and global equities approached a bear market that is fueling a rush into haven assets.
The Dow and Standard & Poor’s 500 Index slid to lows last seen in early 2014, though selling eased in afternoon trading as the 30-stock gauge cut its decline to under 400 points. MSCI Inc.’s gauge of global equities fell to 19.8 percent below its May record and emerging shares plunged 3.2 percent. Russia’s ruble and Mexico’s peso fell to records, while bets mounted on an end to Hong Kong’s dollar peg. A measure of default risk for junk-rated U.S. companies surged to the highest in three years. Yields on 10-year Treasuries dropped below 2 percent and the yen jumped to a one-year high.
“There don’t seem to be any signs of relief,” Kate Warne, an investment strategist at Edward Jones in St. Louis, said by phone. “At times like this when the selloff is feeding on itself, it doesn’t give you an idea of when it will end because it’s mostly emotional. Fundamentals aren’t mattering much. Being busy is good, but it’s definitely not fun when it’s because you’re feeling a sharp selloff like today.”
Equities markets buffeted by everything from China to oil and rising interest rates are off to the worst start to a year on record at the same time the Federal Reserve and other central banks have signaled a higher threshold before they’ll provide relief. The rout in the oil patch is rippling through markets amid growing signs that credit quality is worsening. U.S. bonds now predict the slowest inflation since May 2009 as investors pile into haven assets.
“There are a lot of things behind” the selloff, said Stephen Schwarzman, the chief executive officer of Blackstone Group LP, in an interview Wednesday with Bloomberg Television’s Erik Schatzker from Davos, Switzerland. “You have economic things such as the slowing of the U.S. economy which has been pretty gradual. You’ve got energy going down so quickly that you can almost get windburn. You’ve got China as an issue which is is probably overdone. So when you put those factors together you have an unattractive brew along with the concern the Federal Reserve will raise rates and slow the economy further.”
Selloff Makes Asia Look Very Attractive: HSBC
The MSCI All-Country World Index fell 2.6 percent at 1:47 p.m. in New York, bringing its drop from a May record up to the 20 percent threshold for a bear market. More than $15 trillion has been erased from the value of global equities in the period, according to data compiled by Bloomberg.
The S&P 500 slid 2.2 percent, poised for the lowest close since April 2014. The index pared a drop of more than 3 percent. All but one Dow stock retreated, and all 10 industries in the broader index fell. Energy shares plunged 4.3 percent to the lowest since July 2010.
Should the Dow close lower by 500 points, it would mark the third time since mid-August that the 30-stock gauge has tumbled that much. In the 15 years prior to that, when the index ranged from 6,500 to 18,000 points, the index had registered a rout of that point magnitude on only 12 occasions.
The equities selloff has lowered valuation metrics, leaving the S&P 500 trading at 14.9 times the forecast earnings of its members, in line with the index’s average of the past five years. It’s still more expensive than developed markets in Europe, where the Stoxx 600 Index trades for 13.8 times estimated earnings.
Investors are keeping close watch on progress in the economy as the markets tumble. Data today showed the cost of living in the U.S. dropped in December, led by a slump in commodities. A separate report showed new-home construction unexpectedly fell last month, indicating the industry lost some momentum entering 2016.
The cost of living in the U.S. dropped in December, led by a slump in commodities, and New-home construction in the U.S. unexpectedly fell, government reports showed to day.
The MSCI Emerging Markets Index dropped the most in two weeks, sinking 3.1 percent to the lowest since May 2009. The gauge is down 13 percent this year, the worst start since records began in 1988. Hong Kong’s Hang Seng China Enterprises Index tumbled 4.3 percent as oil producers plummeted and a drop in the city’s dollar spurred concern over capital outflows.
Russia’s Micex Index declined 1 percent and the Bloomberg GCC 200 Index of equities in Gulf markets lost 3.6 percent. The ruble weakened as much as 3.1 percent to a record 81.0490 against the dollar. The Mexican peso fell to a record 18.4775 per dollar and is down 6.4 percent this year, making it Latin America’s worst performing major currency.
Saudi Arabian banks are under orders to stop selling currency products that allow investors to make cheap bets on a devaluation of the riyal, according to five people with knowledge of the matter.
Hong Kong’s dollar traded near its weakest level since 2007 and forwards contracts sank as China’s market turmoil fueled speculation the city’s 32-year-old currency peg will end.
West Texas Intermediate crude tumbled more than 7 percent to $26.45 a barrel before. Inventories probably increased by 2.75 million barrels last week, according to a Bloomberg survey before a report from the Energy Information Administration Thursday.
Mining stocks plumbed a 12-year low and metals resumed their slump on prospects for slower economic growth in China and sustained low oil prices. Copper fell as much as 1.1 percent. The Bloomberg World Mining Index dropped as much as 2.4 percent to its lowest since September 2003, with the world’s biggest miner, BHP Billiton Ltd., losing 6.9 percent in London.
Gold rose as renewed losses in equities spurred demand for less risky assets, with Citigroup Inc. saying bullion’s rationale as a haven was now back in vogue and prices may be supported over the first quarter.
The yen strengthened 0.9 percent to 116.58 per dollar, and touched 115.98, the strongest level since Jan. 16, 2015. Japan’s currency appreciated 0.9 percent to 127.19 per euro. The euro was little changed at $1.0897.
The Australian dollar slid 0.5 percent to 68.78 U.S. cents, extending this year’s decline to 5.6 percent. The kiwi touched the weakest level since Sept. 30.
The Canadian dollar rose for the first time this year after the Bank of Canada kept their benchmark interest rate unchanged and said stronger U.S. demand, a weaker currency and last year’s rate cuts are leading the economy out of an oil slump.
Treasuries climbed, pushing 10-year yields to the lowest since October, as investors sought the safety of sovereign debt. The benchmark 10-year note yield fell nine basis points to 1.97 percent, according to Bloomberg Bond Trader data. That’s the biggest drop since Dec. 11.
The difference between yields on 10-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of expectations for consumer prices, shrank as much as three basis points to 1.37 percentage points, the narrowest since May 2009.
The yield on similar-maturity German bunds sank six basis points to 0.49 percent, while that on U.K. gilts fell seven basis points to 1.63 percent.
The risk premium on the Markit CDX North American Investment Grade Yield Index, a credit-default swaps benchmark tied to the debt of 100 of the safest companies, surged to 112.47 basis points, the most in more than three years. The premium on the Markit CDX North American High Yield Index, rose to 569 basis points, the highest mark since 2012.