A global rout in equities drove the Standard & Poor’s 500 Index to its worst nine-day slump since March 2009, while two-year Treasury yields plunged to a record low amid concern the economy is weakening. The yen pared losses, recovering from the biggest drop versus the dollar since 2008 that was triggered as Japan sold its own currency.
The S&P 500 fell 2.6 percent to 1,227.34 at 1:12 p.m. in New York, a 10 percent drop from its April 29 peak and weakest level in nine months. The MSCI All-Country World Index slid 3.1 percent as Brazil’s stocks slumped to a two-year low and Switzerland’s entered a bear market. Two-year yields declined as low as 0.26 percent. The yen sank about 4 percent against the dollar before trimming its loss to 2.2 percent. Oil plunged 4.8 percent to $87.55 a barrel as 21 of 24 commodities tracked by the S&P GSCI Index dropped. Gold retreated from a record.
Concern the global economy may relapse into a recession has driven investors out of stocks and into the relative safety of Treasuries, the Swiss franc and yen and is spurring speculation the Federal Reserve will start another stimulus program. Japan’s moves to sell the yen, which this week neared a post-World War II record, and expand an asset-purchase fund follows efforts by the Swiss central bank to curb the franc’s gains. The European Central Bank resumed bond purchases and offered banks more cash to stem the spread of the debt crisis.
Today’s slide in the S&P 500 drove the cost of using options to insure against further declines up the most in almost five months. The VIX, as the Chicago Board Options Exchange Volatility Index is know, jumped 18 percent to 27.55, its highest level since March 16.
The 9.3 percent rout since July 22 dragged the S&P 500’s valuation to 13.4 times reported earnings, the cheapest level since April 2009, a month after the bull market began.
“We’re very bullish here,” said Barry Knapp, chief U.S. equity strategist at Barclays Capital Inc., in an interview on Bloomberg Television. “To be clear, we think that the stock market represents exceptional value. The Treasury market represents exceptionally rich levels.”
Energy and raw-material producers slumped the most among 10 industries in the S&P 500, losing more than 3.7 percent. Bank of America Corp., Caterpillar Inc. and Alcoa Inc. slid more than 4 percent to lead declines in 28 of 30 stocks in the Dow Jones Industrial Average, which plunged as much as 373 points.
Gap Inc., the largest U.S. apparel chain, sank 9.4 percent after sales missed analysts’ estimates. DirecTV, the largest U.S. satellite-television provider, tumbled 5.9 percent after adding fewer U.S. customers than analysts estimated.
Speculation the Fed will start a third round of quantitative easing, or “QE3,” is increasing after U.S. data showed manufacturing grew at the weakest pace in two years, spending unexpectedly fell and the services industries grew at the slowest pace since February 2010. Investors are awaiting a government employment report tomorrow, which economists forecast will show the U.S. added 85,000 jobs last month including a 113,000 boost to private-sector employment.
The yen weakened against 13 of 16 of its most-traded peers and depreciating against all earlier today. Japan followed Switzerland in seeking to stem appreciating exchange rates that threatened to damage export competitiveness, also pledging to inject 10 trillion yen ($126 billion) in funds to the economy. Japan acted alone in the market, while officials were in touch with other nations, Finance Minister Yoshihiko Noda told reporters today. The Bank of Japan followed up with monetary stimulus that totaled double the amount pledged days after the March 11 earthquake.
The Japanese intervention weakened the yen to a level against the dollar not seen since July 12, whereas the franc failed to depreciate yesterday to as little as the previous day’s low against the euro following the SNB action.
The Dollar Index, which tracks the U.S. currency against those of six trading partners, jumped 1.3 percent. The stronger dollar weighed on commodities denominated in the U.S. currency, dragging silver, gasoline and crude oil down more than 4 percent.
The pound was 0.9 percent weaker against the dollar after the Bank of England kept its key rate at a record low of 0.5 percent as predicted by all 55 economists surveyed by Bloomberg.
The Swiss Market Index of 20 of the nation’s largest stocks tumbled 3.6 percent and extended its decline from a February high to more than 20 percent, the common definition of a bear market. The MSCI Emerging Markets Index sank 2.6 percent as its loss since May swell to more than 10 percent, or a so-called correction. Brazil’s Bovespa sank 4.6 percent to a two-year low.
The Turkish lira dropped 2.2 percent to 57.71 U.S. cents after the central bank reduced the benchmark interest rate to a record low of 5.75 percent to shield the economy from the impact of the European debt crisis and slowing growth in the U.S.
Among Asian equity markets, South Korea’s Kospi Index tumbled 2.3 percent, completing its biggest three-day sell-off since November 2008. LG Chem Ltd., the nation’s biggest chemicals maker, slid 7.5 percent on concern over petrochemical margins. Taiwan’s Taiex Index declined 1.7 percent, led by a 2 percent fall in United Microelectronics Corp., after the world’s second-largest contract maker of chips said second-quarter net income fell 39 percent. The Hang Seng China Enterprises Index of Chinese companies’ H shares retreated 1 percent.
Source: Bloomberg
The S&P 500 fell 2.6 percent to 1,227.34 at 1:12 p.m. in New York, a 10 percent drop from its April 29 peak and weakest level in nine months. The MSCI All-Country World Index slid 3.1 percent as Brazil’s stocks slumped to a two-year low and Switzerland’s entered a bear market. Two-year yields declined as low as 0.26 percent. The yen sank about 4 percent against the dollar before trimming its loss to 2.2 percent. Oil plunged 4.8 percent to $87.55 a barrel as 21 of 24 commodities tracked by the S&P GSCI Index dropped. Gold retreated from a record.
Concern the global economy may relapse into a recession has driven investors out of stocks and into the relative safety of Treasuries, the Swiss franc and yen and is spurring speculation the Federal Reserve will start another stimulus program. Japan’s moves to sell the yen, which this week neared a post-World War II record, and expand an asset-purchase fund follows efforts by the Swiss central bank to curb the franc’s gains. The European Central Bank resumed bond purchases and offered banks more cash to stem the spread of the debt crisis.
‘Gloomy’ Mood
“The mood right now is gloomy,” Mike Ryan, the New York- based chief investment strategist at UBS Wealth Management Americas, said in a telephone interview. His firm oversees $774 billion. “The burden of proof is for better data that show the economy is not falling into recession. Tomorrow’s payroll report is crucial. If we see another disappointment, the stock market will have significant downside from here.”Today’s slide in the S&P 500 drove the cost of using options to insure against further declines up the most in almost five months. The VIX, as the Chicago Board Options Exchange Volatility Index is know, jumped 18 percent to 27.55, its highest level since March 16.
The 9.3 percent rout since July 22 dragged the S&P 500’s valuation to 13.4 times reported earnings, the cheapest level since April 2009, a month after the bull market began.
“We’re very bullish here,” said Barry Knapp, chief U.S. equity strategist at Barclays Capital Inc., in an interview on Bloomberg Television. “To be clear, we think that the stock market represents exceptional value. The Treasury market represents exceptionally rich levels.”
Energy and raw-material producers slumped the most among 10 industries in the S&P 500, losing more than 3.7 percent. Bank of America Corp., Caterpillar Inc. and Alcoa Inc. slid more than 4 percent to lead declines in 28 of 30 stocks in the Dow Jones Industrial Average, which plunged as much as 373 points.
Gap Inc., the largest U.S. apparel chain, sank 9.4 percent after sales missed analysts’ estimates. DirecTV, the largest U.S. satellite-television provider, tumbled 5.9 percent after adding fewer U.S. customers than analysts estimated.
QE3 Speculation
The S&P 500 yesterday climbed 0.5 percent to snap a seven- day slump, recovering after the Wall Street Journal reported that former Fed officials Donald Kohn, Vincent Reinhart and Brian Madigan said the central bank should consider a third round of bond purchases to help the economy.Speculation the Fed will start a third round of quantitative easing, or “QE3,” is increasing after U.S. data showed manufacturing grew at the weakest pace in two years, spending unexpectedly fell and the services industries grew at the slowest pace since February 2010. Investors are awaiting a government employment report tomorrow, which economists forecast will show the U.S. added 85,000 jobs last month including a 113,000 boost to private-sector employment.
Political ‘Firestorm’
“Given that the last QE2 program just ended, it would be good to wait, because the impact of another program now is questionable,” Alfred Broaddus, former president of the Richmond Fed, said in a Bloomberg TV interview. “And of course, it would probably create something close to a firestorm of political criticism and criticism from market observers.”The yen weakened against 13 of 16 of its most-traded peers and depreciating against all earlier today. Japan followed Switzerland in seeking to stem appreciating exchange rates that threatened to damage export competitiveness, also pledging to inject 10 trillion yen ($126 billion) in funds to the economy. Japan acted alone in the market, while officials were in touch with other nations, Finance Minister Yoshihiko Noda told reporters today. The Bank of Japan followed up with monetary stimulus that totaled double the amount pledged days after the March 11 earthquake.
Central Bank Moves
The franc erased earlier losses versus the euro, rallying 1.7 percent, and reversed its decline versus the dollar. The Swiss National Bank unexpectedly cut interest rates to zero yesterday and injected francs into money markets to curb what it called the “massively overvalued” currency.The Japanese intervention weakened the yen to a level against the dollar not seen since July 12, whereas the franc failed to depreciate yesterday to as little as the previous day’s low against the euro following the SNB action.
The Dollar Index, which tracks the U.S. currency against those of six trading partners, jumped 1.3 percent. The stronger dollar weighed on commodities denominated in the U.S. currency, dragging silver, gasoline and crude oil down more than 4 percent.
The pound was 0.9 percent weaker against the dollar after the Bank of England kept its key rate at a record low of 0.5 percent as predicted by all 55 economists surveyed by Bloomberg.
European Stocks
The Stoxx Europe 600 Index sank 3.4 percent to the lowest level in more than a year. Inmarsat Plc plunged 19 percent in London as the biggest provider of satellite services to the maritime industry cut forecasts for its main mobile-satellite services.The Swiss Market Index of 20 of the nation’s largest stocks tumbled 3.6 percent and extended its decline from a February high to more than 20 percent, the common definition of a bear market. The MSCI Emerging Markets Index sank 2.6 percent as its loss since May swell to more than 10 percent, or a so-called correction. Brazil’s Bovespa sank 4.6 percent to a two-year low.
The Turkish lira dropped 2.2 percent to 57.71 U.S. cents after the central bank reduced the benchmark interest rate to a record low of 5.75 percent to shield the economy from the impact of the European debt crisis and slowing growth in the U.S.
Among Asian equity markets, South Korea’s Kospi Index tumbled 2.3 percent, completing its biggest three-day sell-off since November 2008. LG Chem Ltd., the nation’s biggest chemicals maker, slid 7.5 percent on concern over petrochemical margins. Taiwan’s Taiex Index declined 1.7 percent, led by a 2 percent fall in United Microelectronics Corp., after the world’s second-largest contract maker of chips said second-quarter net income fell 39 percent. The Hang Seng China Enterprises Index of Chinese companies’ H shares retreated 1 percent.
Source: Bloomberg
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