Stocks plunged, sending the MSCI World Index to its biggest drop since June, and Treasuries led a rally in government bonds on concern that the U.S. economic recovery is faltering. The dollar surged the most in 19 months against the euro.
The MSCI measure slid 2.8 percent at 4:50 p.m. New York time, the biggest decline since June 29. The Standard & Poor’s 500 Index sank 2.8 percent, and the Dow Jones Industrial Average retreated 265.42 points, or 2.5 percent, to 10,378.83. The two-year Treasury yield fell as much as 3 basis points to a record low of 0.4892 percent. Gilts extended gains after the Bank of England cut its forecast for growth. The dollar gained up to 2.4 percent, the most since Jan. 6, 2009, to $1.2864 per euro.
The Federal Reserve’s statement yesterday that the recovery is weakening and would require fresh stimulus was followed by an announcement that China’s industrial output rose the least in 11 months, adding to signs that the world’s third-biggest economy is slowing. The selloff today halted a rally in stocks that restored almost $4 trillion to global equity markets between July 5 and yesterday.
“We’re in a worldwide soft patch and investors wonder why the Fed didn’t do more,” said James Swanson, chief investment strategist at Boston-based MFS Investment Management, which oversees about $197 billion. “People are dumping stocks because they’re afraid earnings will decelerate and the economy is losing steam.”
Trade Gap Widens
The S&P 500 extended a 0.6 percent retreat yesterday, when a late-day surge failed to erase losses after the Fed’s plan to continue purchasing Treasuries failed to offset concern that the recovery is faltering.
America’s trade deficit unexpectedly widened in June to $49.9 billion, Commerce Department figures showed today, the highest level since October 2008, as consumer goods imports rose to a record and exports declined.
The difference between two- and 10-year Treasury yields narrowed to 2.17 percentage points, the smallest since May 2009. The German 10-year bund yield dropped to 2.43 percent, the lowest since at least 1989.
Ten-year gilt yields fell 11 basis points to 3.14 percent after the central bank said the U.K.’s economic growth will probably peak at a 3 percent annual pace, slower than the 3.6 percent rate it forecast in May. The pound depreciated 1.1 percent to $1.5675.
The yen appreciated against all 16 of its most-traded counterparts, strengthening as much as 0.8 percent to 84.73 per dollar, the strongest since July 1995. The South Korean won dropped after the government reported the highest unemployment level since April.
Alcoa Inc., Boeing Co. and Caterpillar Inc. slumped more than 3.7 percent, leading losses in the Dow Jones Industrial Average as all 30 of it stocks fell. Amazon.com Inc. fell for the first time in nine days and EBay Inc. slipped 3 percent after Alibaba.com Ltd., the Chinese e-commerce operator, said it wants to expand in the U.S.
The cost of protecting corporate debt from default rose to the highest in three weeks. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses or speculate on creditworthiness, increased 3.9 basis points to a mid-price of 108.7 basis points, the highest since July 21, according to Markit Group Ltd.
More than 53 stocks fell for each that rose in the Stoxx Europe 600 index. Nobel Biocare Holding AG tumbled 11 percent after second-quarter profit fell. The MSCI Asia Pacific Index slid 1.8 percent, the biggest drop since June 7.
The MSCI Emerging Markets Index lost 1.9 percent, and the MSCI China Index fell 1.3 percent. New loans were 532.8 billion yuan ($78.6 billion) in July, China’s central bank said, less than the 600 billion yuan median estimate in a Bloomberg survey of economists. Retail sales grew an annual 17.9 percent, compared with 18.3 percent in the previous month. Industrial output growth slowed to 13.4 percent, the smallest gain since August last year after excluding distortions caused by holidays.
Crude oil fell the most in six weeks, slipping 2.8 percent to $78.02 in New York. Futures extended their retreat after a U.S. government report showed a bigger-than-estimated increase in supplies of gasoline and distillate fuels. Growth in oil demand will decline in 2011, the International Energy Agency in Paris said today, citing “significant” risks that the global recovery will falter.
Tin and lead fell more than 2.8 percent in London. Copper futures for September delivery dropped 1.8 percent to $3.254 a pound in New York.
The Thomson Reuters/CRB Index of commodity prices retreated 1.3 percent in its fifth straight decline, the longest losing streak since March.