Global stocks sank the most in almost six months and the Dow (INDU) Jones Industrial Average erased its gains for the year as corporate earnings disappointed and Argentina’s default stoked concern credit markets will deteriorate. Oil slid with corn as the dollar strengthened.
The MSCI All-Country World Index slid 1.5 percent, its biggest decline since February, while the Dow fell 1.9 percent and the Standard & Poor’s 500 Index dropped 2 percent, the most since April 10. Argentina’s dollar bonds slid, while Portuguese debt fell as Banco Espirito Santo SA was told to raise capital after posting a net loss. U.S. oil lost 2.1 percent and corn futures sank as commodities capped the worst monthly drop since 2012. The dollar climbed against most of its major counterparts.
Today’s losses sent the global gauge and the S&P 500 down at least 1.3 percent in July after five straight months of gains. Technology shares tumbled as Samsung Electronics Co., the world’s biggest smartphone maker, posted a drop in net income, while European companies from Adidas AG to Lufthansa AG said the unrest between Russia and Ukraine was dimming prospects for growth. S&P said Argentina was in default after it missed a $13 billion interest payment on debt and negotiations failed.
“Selling breeds selling,” said Timothy Ghriskey, who helps oversee $1.5 billion as chief investment officer for Bedford Hills, New York-based Solaris Asset Management LLC. “There’s a lot of chatter about a correction, so I think that does cause some profit taking. When traders get a whiff of that, they join right along.”
The Dow lost 317.06 points to 16,563.30, leaving it down 0.1 percent in 2014. The index had climbed 1.8 percent this year as of yesterday.
The decline in MSCI’s All-Country index was the third in three days and only the fifth time this year the gauge lost more than 1 percent. Equities in France, Germany, Spain and Italy lost between 1.5 percent and 2.1 percent as the Euro Stoxx 50 Index slipped to the lowest level since April 15. The MSCI Asia Pacific Index (MXAP) retreated 0.4 percent as Japanese shares declined.
The S&P 500, which is up almost 5 percent this year and reached a record on July 24, has gone without a 10 percent correction since 2011. It trades at 17.6 times the reported earnings of its companies, near the highest level since 2010.
The selloff came on the eve of the U.S. Labor Department’s employment report, which economists predict will show that companies added 230,000 jobs in July. On July 30, the Federal Reserve said slack in the labor market persists even as the economy is picking up. A measure of wages, the employment cost index, rose 0.7 percent in the second quarter, faster than predicted, U.S. data showed.
Exxon Mobil Corp. sank 4.2 percent after the world’s largest energy company reported oil and natural gas production declined to the lowest level in almost five years. Kraft Foods Group Inc. slid 6.4 percent after reporting quarterly results that trailed analysts’ estimates.
Market volatility is rising after the S&P 500 (SPX) ended its longest stretch of calm since 1995 this month. Including today, the index has posted gains or losses of more than 1 percent three times in the past two weeks, compared with none during the 62 days through July 16, data compiled by Bloomberg show.
The Chicago Board Options Exchange Volatility Index (VIX), known as the VIX, surged 27 percent today to 17, the highest level since April.
Lufthansa lost 7.3 percent in Germany after Europe’s second-largest carrier said second-quarter profit fell and predicted travel markets will remain weak in the second half. Adidas slumped 15 percent as the sporting-goods maker lowered its forecast for 2014. In the U.S., Nike Inc. (NKE) dropped 3.1 percent.
Argentina missed a deadline yesterday to pay $539 million in interest after two full days of negotiations in New York failed to produce an accord with creditors from its last default in 2001. A U.S. judge ruled that the payment couldn’t be made unless those investors, a group of hedge funds led by Elliott Management Corp., got the $1.5 billion they claimed.
Argentine notes due in 2033 tumbled 6.82 cents to 88.75 cents on the dollar as of 5:16 p.m. in New York. The bonds had rallied 11.7 cents the previous two days. The Merval stock index fell from a record, plunging 9 percent, while the peso weakened 0.1 percent against the greenback in a 12th consecutive day of losses.
“When events like this happen, investors try to figure out whether this is an isolated occurrence or the first domino in a chain,” Lawrence Creatura, who helps oversee $350 billion as a fund manager at Pittsburgh-based Federated Investors Inc., said in a phone interview. “There is always a bit of uncertainty as to which we have on our hands.”
Portugal’s Banco Espirito Santo plunged 42 percent after it was ordered to raise capital following a 3.6 billion euro ($4.8 billion) first-half net loss. The central bank is also probing the lender’s former managers and suspended executives in charge of audit, compliance and risk management.
The lender’s 750 million euros of 7.125 percent subordinated bonds plunged 21.2 cents on the euro to 54.6 cents, to yield 17 percent, according to data compiled by Bloomberg.
The dollar climbed after data indicated the economy is improving, boosting predictions for higher interest rates from the Federal Reserve. A report today showed fewer Americans filed applications for unemployment insurance benefits over the past month than at any time in more than eight years, a sign employers are hanging on to workers as demand improves.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, added 0.1 percent in a sixth rising day to close at the highest level since Feb. 26. The gauge jumped 1.9 percent in July, the best performance since May last year.
“The Fed may have to change course sooner than expected if reports continue to show the economy is gaining some strength,” Bruce Bittles, chief investment strategist at Milwaukee-based RW Baird & Co., which oversees $110 billion, said in a phone interview.
India’s rupee weakened 0.8 percent versus the dollar on concern capital inflows to emerging markets will slow as the Fed cuts bond purchases. Australia’s dollar fell to an eight-week low after building approvals unexpectedly declined, while New Zealand’s dollar, known as the kiwi, capped a monthly drop of 2.9 percent, the biggest retreat among 16 major currencies tracked by Bloomberg.
The dollar gained against all but one of its 16 counterparts in July, with the Singaporean dollar adding 0.1 percent. The yen was down 1.5 percent in July and today capped its longest stretch of daily losses since December 2001.
WTI crude dropped 6.8 percent to $98.17 a barrel July, the worst monthly retreat since May 2012, as U.S. gasoline demand slipped and the stronger dollar weighed on commodities. Brent crude lost 1 percent today in London to $105.48 a barrel.
The Bloomberg Commodity Index of 22 raw materials fell 5 percent in July, for the biggest loss since May 2012.
Corn dropped 1.2 percent today on expectations supplies will be ample amid predictions for a bumper harvest in the U.S., the top grower of the crop. Prices slumped 14 percent in July, a third straight monthly drop and the biggest decline since September 2011.
To contact the editors responsible for this story: Lynn Thomasson at email@example.com Michael P. Regan, Emma O’Brien