- S&P 500 heads for August lows, Europe shares near bear market
- Yield on 10-year Treasury note declines below 2 percent
The Dow Jones Industrial Average sank more than 300 points, European stocks fell to the precipice of a bear market and the Shanghai Composite Index wiped out gains from an unprecedented state-rescue campaign. Oil plunged past $30 a barrel as Iran prepares to export into a global supply glut. A measure of default risk for junk-rated U.S. companies surged to the highest three years. Yields on 10-year Treasury notes dipped under 2 percent, while the dollar extended a rally. Gold surged with the yen on haven demand.
Crude’s drop to a 12-year low is sending shock waves around the world at the same time concern is mounting that China’s policy interventions will fall short of stoking growth in the world’s second-largest economy. Energy firms are laying off workers and currency markets from commodity-producing countries are in turmoil. The slump is also denting the outlook for inflation around the world, causing traders to curb bets on how far the Federal Reserve will raise interest rates this year.
“Markets have to go through several stages and right now they’re just holding their head and crying,” Krishna Memani, chief investment officer at Oppenheimer Funds Inc. in New York, said by phone. “The drama and issue overnight is more related to oil prices not finding a floor. If it was just China and everything else was OK, we’d see through that. But when China is down and oil drops everyday, the market recognizes it has substantial issues.”
The Standard & Poor’s 500 Index plunged 1.9 percent at 10:36 a.m. in New York, erasing yesterday’s rally and poised to close at the lowest level since Aug. 25. The gauge is headed for a third weekly decline, its longest slide since July. The Dow tumbled 326 points as none of its 30 members advanced, while small caps added to a bear market.
Citigroup Inc.’s fourth-quarter profit beat analysts’ estimates as it generated more revenue from investment banking. The shares slipped 1.3 percent in early New York trading. Wells Fargo & Co.’s earnings also topped estimates as revenue from lending and securities investments increased. Its shares fell 1.5 percent.
Reports showed sales at U.S. retailers declined in December to wrap the weakest year since 2009 and the Fed’s New York manufacturing index at minus 19.7 in January.
The Stoxx Europe 600 Index retreated 2.5 percent, heading for a weekly drop of 3.1 percent. Europe’s benchmark has tumbled more than 20 percent since an April high, poised to close in what is considered a bear market.
West Texas Intermediate crude fell as much as 6.2 percent, before trading 5.4 percent lower at $29.51 a barrel. Brent fell 3.9 percent to $29.69 a barrel.
International sanctions on Iran may be lifted Monday, allowing for a boost in oil shipments from the fifth-biggest member of the Organization of Petroleum Exporting Countries.
Oil will turn into a new bull market before the year is out as the price rout shuts down production, putting the U.S. shale-oil boom into reverse in the second half of the year, according to Goldman Sachs Group Inc. As U.S. production slumps by 575,000 barrels a day, global oil markets will tip from surplus to deficit, the bank said in a report.
Gold, up 0.5 percent today at $1,083.28 an ounce, is headed for its worst week since November after failing to overcome resistance watched by traders who study charts near its 100-day average.
The Bloomberg Commodity Index, which measures returns on 22 raw materials, dropped 1.2 percent.
The MSCI Emerging Markets Index fell 1.9 percent on Friday and 4 percent this week. Shares in Shanghai entered a bear market for the second time in seven months, dropping more than 20 percent from its December high and sinking below its low during the depths of a $5 trillion rout in August.
The Shanghai Composite Index sank 3.6 percent on Friday, extending losses after a report that some banks in Shanghai have halted accepting shares of smaller listed companies as collateral for loans. The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong fell 2.6 percent to a four-year low.
Energy producers dragged Russia’s Micex index down 3.6 percent, extending this week’s drop to 7.3 percent, it’s worst performance for the period since March 2014. Brazil’s Ibovespa slid 2 percent. India, South Korea, Poland and Thailand lost at least 1 percent.
Russia’s ruble sank 2 percent and South Africa’s rand fell 1 .3 percent, leading a gauge of emerging-market currencies down 0.5 percent, capping its third weekly decline. Over the five day period, the ruble slid 3.7 percent and the rand lost 2.1 percent. Brazil’s real and Mexico’s peso lost at least 0.9 percent on Friday.
The Hong Kong dollar fell 0.15 percent to HK$7.7933 per dollar, taking its two-day drop to 0.4 percent, the most since October 1992. The global foreign-exchange situation is complicated and it’s possible the currency will decline to the weaker side of the peg, the city’s Financial Secretary John Tsang told reporters. The existing exchange-rate system limits declines to HK$7.85 and caps gains at HK$7.75.
Australia’s dollar slid 1.7 percent to the weakest level since April 2009. The Canadian dollar fell for an 11th straight day in its longest run of losses on record. New Zealand’s kiwi slumped 1.4 percent.
The yen appreciated against all its 16 major peers as turmoil in markets boosted demand for havens. The euro also gained, while the Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 major counterparts, rose for a sixth day.
Government bonds advanced across Europe as investors sought the safety of fixed-income securities. The yield on German 10-year bunds, the region’s benchmark bonds, declined three basis points to 0.54 percent. Italy’s 10-year yield fell six basis points to 1.51 percent.
U.S. Treasuries gained as traders pulled back expectations for the number of Fed interest-rate increases this year. Data compiled by Bloomberg shows they expect the effective fed funds rate will rise to 0.7 percent in a year’s time, implying one increase, compared with policy maker estimates for four. The 10-year yield fell 10 basis points to 1.99 percent.
The risk premium on the Markit CDX North American High Yield Index, a gauge tied to U.S. junk-rated companies, surged to the highest level since November 2012. Junk-bond funds reported $2.1 billion of redemptions in the week through Jan. 13, according to data provider Lipper.