China’s weakening economic expansion and slowing earnings growth in the U.S. sent copper into a bear market and gold to the biggest weekly drop in a year and a half, while global stocks fell the most in 10 months.
Gold futures slid 7 percent to $1,395.60 an ounce during the week and copper retreated 5.6 percent in London for the largest decline since December 2011. The Standard & Poor’s GSCI Index of 24 commodities fell 2.5 percent, a third weekly slump. The MSCI All-Country World Index of 45 markets fell 2.2 percent, paring the decline yesterday with a 0.7 percent gain. Treasuries rose, while the euro and yen weakened versus the dollar.
“We have a very negative psychology in the world investment community,” said Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. “We’re getting simultaneous issues that relate to the economies around the world, starting with the U.S. and China, which at best are mixed economically, and then you’re getting earnings reports, which are also at best mixed.”
Concern the U.S. Federal Reserve is considering reducing stimulus just as markets enter a period when equities have fallen in the last three years spurred some of the biggest losses in 2013. The retreat follows three straight quarters of gains for stocks globally and increases for gold in every year since 2001.
Profits at S&P 500 companies probably dropped 1.1 percent in the first three months of the year, the first decline since 2009, according to more than 11,000 analyst estimates compiled by Bloomberg. Bank of America Corp. reported profit that missed projections after shortfalls in mortgage banking and trading. International Business Machines Corp., the largest computer-services provider, missed analysts’ earnings estimates for the first time since 2005 as the company struggles to boost hardware sales.
China’s GDP rose 7.7 in the first quarter from a year earlier, compared with the 8 percent median forecast in a Bloomberg survey of economists and 7.9 percent growth in the fourth quarter. March industrial production rose less than estimated, according to a report.
“Growth outlooks are weak and the earnings season hasn’t exactly started extremely positive,” said Kai Fachinger, who oversees about $700 million as portfolio manager at RobecoSAM AG in Zurich. “Many market participants have their thumbs closer to the sell button than the buy button.”
The S&P GSCI Index fell to the lowest level since July during the week, led by silver, gold, lead and copper amid signs of surplus in the commodities and concern that China’s economy will slow. Silver, down 24 percent, is the worst performer this year. Gold slid 13 percent over April 12 and April 15, the biggest two-day retreat since 1980. Both of the precious metals entered a bear market this month joining sugar, soybeans and coffee.
Commodities are on the brink of a great rotation in price performance and market leadership, Barclays Plc said in a report on April 19. Gold and silver will be among the weakest over the next few years, according to the London-based bank.
“Excess supply is the biggest issue so this was a necessary correction like we saw in gold,” Michael Strauss, who helps oversee about $25 billion of assets as chief investment strategist at Commonfund Group in Wilton, Connecticut, said in a telephone interview. “It will take a strong economic cycle to push prices higher.”
Freeport-McMoRan Copper & Gold Inc. and Nabors Industries Ltd. tumbled more than 7.8 percent amid plunging commodity prices. Bank of America and IBM sank at least 4.2 percent for the week. Apple Inc. declined 9.1 percent as one of its suppliers reported an inventory glut.
The S&P 500 slid 2.1 percent during the week, the most since November. The U.S. equity benchmark is forecast to rise 1.8 percent to 1,583 by the end of the year, according to the average of 17 strategists surveyed by Bloomberg. The gain would give the index a 134 percent advance since the bull market started in March 2009.
The Stoxx Europe 600 Index in Europe will rise 8 percent to 308 in 2013, the average estimate of eight strategists show. The gauge posted a weekly loss of 2.5 percent.
“Even though we’ve seen a few hiccups and stumbles here, we’re going to continue with the global recovery,” Scott Wren, the St. Louis, Missouri-based senior equity strategist at Wells Fargo Advisors LLC, which oversees about $1.2 trillion, said in an April 18 Bloomberg Television interview. “We want to take advantage of these pullbacks.”
U.S. stock volatility had the biggest weekly increase of 2013 last week, as the Chicago Board Options Exchange Volatility Index climbed 24 percent to 14.97. The index known as the VIX surged 46 percent in the first four days of the week, briefly erasing its year-to-date decline, before sliding 15 percent on April 19.
Commodity-linked currencies such as the Australian and New Zealand dollars declined versus most of their 16 major counterparts. The Australian dollar slid 2.2 percent to $1.0277, while the so-called kiwi weakened 2 percent to 84.19 U.S. cents.
The yen fell for a third week against the dollar after the Group of 20 gave Japan leeway to reflate its economy by indicating the nation’s monetary stimulus plan doesn’t contravene a pact to avoid currency devaluations. The yen depreciated 1.2 percent to 99.52 per dollar for the week. The Bank of Japan’s next meeting is set for April 26.
The yen will decrease to 100 versus the dollar by the end of the year, according to the median estimate of more than 50 economists surveyed by Bloomberg.
“We’re looking for the yen weakening trend to continue over the course of coming weeks,” Ian Stannard, head of European currency strategy at Morgan Stanley in London, said in a phone interview. “The fact that we still see central banks providing reassurance that monetary accommodation will remain in place, that is going to provide the underlying support.”
The 10-year break-even rate, a measure of inflation expectations derived from the difference between yields on conventional Treasuries and index-linked securities, finished the week at 2.32 percent. The rate had declined to 2.25 percent on April 18, the lowest level since Sept. 4 as the cost of living in the U.S. declined in March for the first time in four months.
Benchmark 10-year note yields will rise to 2.43 percent by the start of 2013, according to the median forecast of 62 economists surveyed by Bloomberg. Ten-year Treasury yields traded near a four-month low last week.
“Yields are clearly very low in core sovereign bond markets,” John Wraith, a fixed-income strategist at Bank of America Merrill Lynch in London, said in a phone interview. “We are concerned that momentum is starting to fade in the U.S., and that was clearly what a lot of the rally in risk markets was premised on.”