NEW YORK – Turmoil returned to financial markets as oil plunged past $27 a barrel, the Dow Jones Industrial Average sank 550 points and global equities approached a bear market that is fueling a rush into haven assets.
U.S. stocks added to losses in afternoon, withe Dow and Standard & Poor’s 500 Index sliding to lows last seen in early 2014. MSCI Inc.’s gauge of global equities fell to 20 percent below its May record, as emerging shares plunged 3.4 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 are a lot of things behind” the selloff, said Steven Schwarzman, the CEO 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.”
Equities markets buffeted by everything from China to oil 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.
“What the market is focused on is Chinese hard landing fear, oil prices and the strength in the dollar,” Phil Orlando, who helps oversee $360 billion as chief equity-market strategist at Federated Investors Inc. in New York., said by phone. “Domestic economic fundamentals don’t matter, and that’s the point of this correction. That’s when we start talking about the need to retest the summer lows and holding at that level to take us to long-term support.”
Stocks
The MSCI All-Country World Index fell 3.4 percent at 12:49 p.m. in New York, bringing its drop from a May record past 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 Standard & Poor’s 500 Index slid 3.6 percent to the lowest level since April 2014 on a closing basis. Both the S&P 500 and the Dow are having their worst days in four months. All 10 industries in the broader index plunged at least 2.8 percent, leaving each of them lower for the year.
Goldman Sachs Group Inc. slipped 0.6 percent after reporting a 65 percent drop in fourth-quarter profit as an agreement to settle a U.S. probe into its handling of mortgage- backed securities reduced earnings. International Business Machines Corp. lost 7.2 percent after the company’s 2016 earnings forecast missed projections. Microsoft Corp. and Apple Inc. were among other technology companies down at least 1.6 percent.
The S&P 500 trades at 14.9 times the forecast earnings of its members, in line with the index’s average of the past five years. It’s 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.
Shell slid 5.5 percent and BHP Billiton Ltd. dragged commodity producers lower, falling 6.9 percent after trimming its full-year iron ore output forecast. Zurich Insurance Group AG declined 8.7 percent after forecasting a second straight quarterly loss for its biggest unit.
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.
Emerging markets
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.
Commodities
West Texas Intermediate crude lost as much as 4 percent to $27.32 a barrel before trading 3 percent lower. 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.
Currencies
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.
Bonds
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.
