U.S. stocks escaped the brunt of a global selloff that sent Tokyo shares to the worst two-day drop since 1987, paring losses as Japanese officials made progress stabilizing damaged nuclear reactors and the Federal Reserve said the economy is improving. Commodities slid and bonds rose.
The Standard & Poor’s 500 Index fell 1.1 percent while the MSCI All-Country World Index slumped 2.3 percent at 4:32 p.m. in New York. Nikkei 225 Stock Average futures traded at 8,970 in Chicago, up from the close of 8,620 in Singapore, after the index plunged 11 percent to 8,605.15 in Tokyo. Ten-year Treasury yields lost five basis points to 3.30 percent. The yen rose 1.1 percent against the euro and dollar amid speculation investors were repatriating foreign funds to pay for Japan’s recovery.
The S&P 500 trimmed a morning plunge of as much as 2.7 percent and Nikkei futures rebounded as radiation readings retreated below harmful levels at reactors damaged in last week’s earthquake and tsunami. U.S. stocks pared losses further as the Fed said the economy is on “firmer footing.” Thomas Lee, equity strategist at JPMorgan Chase & Co., and Mary Ann Bartels of Bank of America Corp. said the recent slide in the S&P 500 may be a buying opportunity.
“It’s unlikely that the Japanese nuclear situation is going to spread beyond the local area, so sanity prevailed here at the end of the day,” said New York-based John Barr of Needham Asset Management LLC, which oversees about $900 million. “We will have supply chain disruptions in many companies for a while from this, but investors became more confident that the global economy is going to work its way through this.”
The Nikkei 225’s one-day drop was the biggest since October 2008 and extended its two-day slide to 16 percent. South Korea’s Kospi Index (KOSPI) sank 2.4 percent, the most in four months, while Taiwan’s Taiex Index retreated 3.4 percent, the most since February 2010.
Trading in a U.S. exchange-traded fund linked to Japanese stocks showed investors expect shares in the world’s third- largest economy may rebound when trading resumes in Tokyo. The iShares MSCI Japan Index Fund (EWJ) tracking 323 securities fell 0.2 percent to $10.03 after earlier plunging 8.1 percent to $9.24, its lowest level intraday since July.
Atsushi Saito, president and chief executive officer of Tokyo Stock Exchange Inc., said investors and traders should “respond in a calm and orderly manner” following the biggest two-day retreat since the 1987 stock-market crash, according to a statement on the company’s website.
“Saito’s call for a quiet period is a thoughtful approach,” said Richard Torrenzano, chief executive officer of the Torrenzano Group, who was spokesman for the New York Stock Exchange in 1987. “We’ve seen stock markets in panic modes before. You have the economy, the companies, the investors who need to assess the market. There are a lot of very big things at stake here.”
The Tokyo exchange will be open on March 16, said Naoya Takahashi, an exchange spokesman.
Costs to insure Japanese debt climbed to a record earlier as Tokyo Electric Power Co.’s damaged nuclear power plant was rocked by two explosions today as workers struggled to avert a meltdown in the wake of last week’s earthquake. Credit-default swaps on Japan’s government debt soared 23 basis points to 118.5 and reached a record 122.3, according to CMA, and Tokyo Electric’s jumped 224.2 basis points to 373.5, up from 40.5 on March 11.
The yen rose against all 16 major counterparts, climbing 1.1 percent to 80.74 per U.S. dollar. Japanese investors will repatriate funds as the nation seeks to recover from the quake, said Mohamed El-Erian, chief executive officer at Pacific Investment Management Co.
“We know that inflation will spike because of shortages and because of supply chain disruptions, and we know that the deficit and public debt are going to increase significantly,” El-Erian, who’s also co-chief investment officer, said in a telephone interview on “Bloomberg Surveillance” with Tom Keene. “Fortunately, Japan is a rich economy, and the private sector has saved a lot. Japan can navigate this.”
Prime Minister Naoto Kan called for calm as the government battled to cool three quake-damaged nuclear reactors with seawater. Chief Cabinet Secretary Yukio Edano said this afternoon radiation readings outside damaged reactors were falling below harmful levels, while a fire at a separate unit appeared to have been put out. Earlier today, Edano said the steel unit containing the radioactive core of one reactor had been damaged and warned of dangerous contamination.
The S&P 500 declined for the fourth time in five days, with utility, technology and financial shares leading declines in all 10 industry groups. The gauge is up 1.9 percent in 2011 and has rallied 89 percent from its bear-market low in March 2009.
General Electric Co., which is in talks to sell reactors to India, sank 1.6 percent. The nuclear plant in Fukushima consists of six reactors based on GE designs, three of which were built by the company, according to its website.
Aflac Inc. and Hartford Financial Services Group Inc. led declines in 17 of 22 companies in the S&P 500 Insurance Index on concern that operations and investments in Japan will be hobbled. Aflac, which gets three-quarters of its revenue in Japan, lost 5.6 percent and Hartford fell 4.6 percent.
Nuclear power stocks slumped for a second day on concern the Japanese incidents will hurt the industry’s growth. Shaw Group Inc. (SHAW), the U.S. engineering company that has a nuclear power partnership with Japan’s Toshiba Corp., retreated 2.1 percent and is down 11 percent over the last two days. Uranium Energy Corp. (UEC) slid 4.6 percent, paring a tumble of as much as 23 percent, and Uranium Resources Inc. (URRE) dropped 9.7 percent.
Solar-power stocks rallied on speculation that clean energy will benefit. First Solar Inc. (FSLR) advanced 8.2 percent for the biggest gain in the S&P 500. Trina Solar Ltd. (TSL) rallied 8.8 percent and LDK Solar Co. rose 9.3 percent.
The S&P 500 has tumbled 4.6 percent from its 32-month high on Feb. 18 amid concern uprisings in the Middle East and northern Africa and Japan’s worst earthquake on record will hurt global growth.
There’s a “good chance” the S&P 500 has reached its low for 2011 after falling to as low as 1,261.12 today, according to JPMorgan’s Lee, the bank’s chief U.S. equity strategist. The benchmark index will climb 13 percent to 1,425 from the low, with oil prices retreating from their highs and global growth set to benefit from the rebuilding of Japan, according to Lee’s year-end estimate.
“The earthquake could ultimately be stimulative to global growth as the drop in Japan output is met by output increases elsewhere,” Lee wrote in a note to clients. “The earthquake is unlikely a global event to trigger slowdown” and there’s little risk Japan falls into a recession, he wrote.
Mary Ann Bartels, Bank of America’s head of U.S. technical analysis, said the index’s decline since Feb. 18 presents a buying opportunity because the pullback will be “modest” and the S&P 500 has “key” support at 1,270.
Fed policy makers said the recovery is gaining strength and that higher energy prices will have a temporary effect on inflation, while reaffirming plans to buy $600 billion of Treasuries through June.
“The economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually,” the Federal Open Market Committee said today in its statement after a two-day meeting in Washington. The effects of higher fuel and commodity costs on inflation will be “transitory,” and Fed officials “will pay close attention to the evolution of inflation and inflation expectations.”
U.S. stock-index futures maintained losses before the open of exchanges even as a report showed manufacturing in the New York region accelerated in March at the fastest rate in nine months. The Fed Bank of New York’s general economic index rose to 17.5 from 15.4 in February. Economists forecast an increase to 16.1, based on the median in a Bloomberg News survey.
Labor Department figures showed a 1.4 percent increase in the import-price index, exceeding the 0.9 percent median forecast in a survey. Prices excluding fuel rose 0.3 percent. Food costs over the past 12 months posted the biggest gain since records began in 1977.
The Stoxx Europe 600 Index lost 2.3 percent, its worst drop since November, as the VStoxx Index (V2X), which gauges the cost of protecting against declines in the region’s shares, surged 16 percent to the highest level since November. Volkswagen AG and Daimler AG led automakers lower. German utilities RWE AG and E.ON AG fell more than 2.8 percent each after Chancellor Angela Merkel put plans to extend the life of nuclear plants on hold for three months.
The 30-year Treasury bond rose, sending its yield down 7 basis points to 4.45 percent, with the 10-year yield paring declines after decreasing as much as 15 basis points to 3.20, the lowest intraday since Dec. 10. The 10-year German bund yield dropped 9 basis points to 3.14 percent, while the yield on the country’s two-year note sank 11 basis points to 1.53 percent.
Belgium said it postponed a sale of six-year bonds because of market volatility caused by the Japan nuclear crisis.
Credit-default swaps on Bahrain jumped 35 basis points to 348.8, the highest since July 2009, according to CMA. Fitch Ratings downgraded Bahrain’s long-term foreign currency issuer default rating to ‘BBB’ from ‘A-’.
Persian Gulf Stocks
“In addition to the tragic events in Japan, the market had to contend with a potential escalation of the Middle East situation,” Gary Jenkins, head of fixed-income at Evolution Securities Ltd. in London, wrote in a client note. “It would not be a surprise if the significant price moves of the last couple of days did not lead to problems elsewhere in the financial system.”
Emerging-market stocks tumbled the most in eight months, currencies sank and borrowing costs rose. The MSCI Emerging Markets Index declined 2.2 percent, the biggest drop on a closing basis since June 29. The extra yield on emerging-market debt over U.S. Treasuries jumped 7 basis points to 2.74 percentage points, JPMorgan Chase & Co.’s EMBI+ Index showed.
Won, Rand Protection
The cost to insure against tumbles in South Korea’s won and South Africa’s rand surged. One-month options giving investors the right to sell the rand cost 2.41 percentage points more than contracts to buy, compared with 2 percentage points yesterday, the biggest increase since April, according to data compiled by Bloomberg. The premium to sell the won rose to 3.69 percentage points from 2.93, the biggest surge since November.
Crude oil fell 4 percent, the most in almost five months, to $97.18 a barrel in New York, amid concern that Japan’s earthquake will curb demand. Brent crude for April settlement fell $5.15 to $108.52 a barrel. U.S. gasoline futures fell 5.3 percent to $2.8029 a gallon in New York electronic trading.
Copper for delivery in May slumped 1.2 percent to $4.137 a pound in New York and touched $4.076, the lowest since Dec. 10. Gold for April delivery lost 2.3 percent to $1,392.80 an ounce and silver futures retreated 4.8 percent to $34.117 an ounce, dropping for the first time in three days.
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