Global stocks tumbled the most since June, as the biggest drop in emerging markets in two months prompted investors to seek havens in Treasuries, German bunds and yen. Natural gas reached a three-year high.
The MSCI All-Country World Index fell 1.9 percent at 4 p.m. in New York. The Standard & Poor’s 500 Index slid 2.1 percent, pushing it to the biggest weekly drop since June 2012. The MSCI Emerging Markets Index tumbled 1.4 percent, extending its 2014 decline to 5.2 percent. The yen rose as emerging-market currencies had the worst selloff in five years. Ten-year Treasury yields slipped to an eight-week low. Natural gas surged above $5 for the first time since 2010 on forecasts for cold weather in the U.S.
Stocks retreated this week as signs of weakness in China’s economy added to concern over the impact of cuts to the U.S. Federal Reserve’s stimulus program. China’s banking regulator ordered its regional offices to increase scrutiny of credit risks in the coal-mining industry, said two people with knowledge of the matter, signaling government concern about possible defaults.
“The current environment is potentially very toxic for emerging markets,” Eamon Aghdasi, a strategist at Societe Generale SA in New York, said in a phone interview. “You have two very troubling things: uncertainty about the Fed policy, combined with concerns about growth, particularly in China. It’s difficult to justify that it’s time to go out and buy emerging markets at the moment.”
More than $940 billion has been erased from the value of emerging-market equities since the Fed signaled in May that it could start scaling back bond purchases that boosted demand for higher-yielding assets. A Bloomberg gauge tracking 20 emerging-market currencies fell to the lowest level since April 2009 today, tumbling 9.8 percent over the past 12 months, bigger than any annual decline since it slid 15 percent in 2008.
The Turkish lira weakened 2.2 percent to 2.3423 per dollar, extending declines for the month to 9 percent. The South African rand sank 1.1 percent to the weakest level since October 2008. Argentina’s peso depreciated 12 percent yesterday to an unprecedented low as policy makers devalued the currency by reducing support in the foreign-exchange market. It lost another 1.5 percent today.
Argentina will ease currency controls after the peso’s slide brought the rate to a level Cabinet Chief Jorge Capitanich said was acceptable. Argentines will be able to buy dollars for savings in line with their income more than two years after first installing restrictions on foreign-currency purchases, he said today in Buenos Aires.
“It looks as though we may be about to enter the critical phase,” said John-Paul Smith, global emerging-market equity strategist at Deutsche Bank AG in London. “All of the structural vulnerabilities which have been apparent on a micro level for the past three years are now beginning to undermine investor confidence, so that what has so far mainly been a relative underperformance story is now starting to impact absolute performance of equities in general and EM equities in particular.”
The European Central Bank, the Bank of England, the Bank of Japan and the Swiss National Bank jointly decided to reduce the offering of dollar loans to banks, the ECB said today. Fed policy makers meet Jan. 28-29 and will probably cut another $10 billion from their monthly bond-buying program, according to the median forecast of economists surveyed by Bloomberg this month.
The U.S. central bank decided at its December meeting to start cutting its monthly bond purchases by $10 billion to $75 billion. Three rounds of Fed monetary stimulus helped the S&P 500 rise more than 170 percent from a 12-year low in 2009.
The benchmark U.S. stock index rallied 30 percent to a record last year, the most since 1997. The advance has boosted equity valuations to near the highest level since 2009. The S&P 500 trades at 15.2 times the estimated earnings of its members, more than the five-year average multiple of 14.1, data compiled by Bloomberg show.
The S&P 500 and the Dow Jones Industrial Average fell the most since June today. The Dow posted its worst weekly loss since May 2012, with a 3.5 percent drop. The gauge is down 4.2 percent for the year. The S&P 500 declined 2.6 percent this week, bringing its slide for 2014 to 3.1 percent for its worst start to a year since 2008.
Investors have been scrutinizing corporate earnings. Per-share profit for companies in the benchmark probably climbed 6.6 percent in the fourth quarter, while sales increased 2.6 percent, according to analysts surveyed by Bloomberg.
General Electric Co., Boeing Co. and 3M Co. slid more than 3.3 percent to lead losses in the Dow, which tumbled 318 points today. Commodity producers and industrial shares fell the most among 10 groups in the S&P 500, tumbling more than 2.7 percent.
Companies whose earnings are most tied to economic swings dropped. The Morgan Stanley Cyclical Index lost 3 percent, the most since April, as Whirlpool Corp. slid 5 percent. An S&P gauge of homebuilders fell 3.4 percent. D.R. Horton Inc. slipped 4.9 percent and PulteGroup Inc. fell 4.1 percent.
The Dow Jones Transportation Index, which reached a record yesterday, slid 4.1 percent for the biggest one-day decline since November 2011. Delta Air Lines Inc. fell 4.3 percent.
Microsoft Corp. gained 2.1 percent as the world’s largest software maker said revenue climbed 14 percent to a record $24.5 billion in the fiscal second quarter.
The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, surged 32 percent to 18.14 today for the largest advance since April.
The Stoxx Europe 600 Index erased 2.4 percent, the worst performance since June, as only 31 companies in the index advanced. Trading volume was 46 percent higher than the 30-day average. The gauge tumbled 3.3 percent for the week.
Aberdeen Asset Management Plc, Scotland’s largest money manager, lost 5.7 percent after Morgan Stanley lowered its rating to the equivalent of a sell, citing “challenging” emerging-market fundamentals. Novartis AG slid 3 percent after failing to win backing from a European advisory panel for its Serelaxin treatment for acute heart failure.
Celesio AG gained 3.7 percent after McKesson Corp. agreed to buy majority owner Franz Haniel & Cie.’s entire holding in the European company for 23.50 euros a share.
“We’ve had the worst start for equities in some years and after one of the strongest years people are looking for excuses to sell,” said Witold Bahrke, who helps oversee $55 billion as a senior strategist at PFA Asset Management in Copenhagen.
The yen climbed against all 16 of its major peers, advancing 1 percent to 102.28 per dollar, the strongest level since Dec. 11, and strengthening 1.1 percent to 139.89 per euro.
The Australian dollar fell 0.8 percent to 87 U.S. cents after reaching 86.60, the least since July 2010. China is Australia’s biggest trading partner. The Wall Street Journal cited central bank board member Heather Ridout as saying around 80 cents would be a fair deal for everybody.
The yield on 10-year Treasury notes fell five basis points to 2.73 percent and touched 2.70 percent, the lowest since November. Ten-year German bund yields slid five basis points to 1.66 percent, the lowest since August on a closing basis. The rate on 10-year U.K. gilts dropped four basis points to 2.77 percent.
The Markit iTraxx Asia index of credit-default swaps on 40 investment-grade borrowers outside Japan climbed 7.6 basis points to 150. Corporate bond risk in Europe rose to the highest in more than a month, with the Markit iTraxx Europe Index of 125 investment-grade companies increasing 8 basis points to 84 basis points, the highest since Nov. 13.
Natural gas rose 9.6 percent to $5.182 per million British thermal units, the highest level since June 2010. Prices surged 20 percent this week for its biggest rally in more than three years. Wind chill warnings and advisories stretch from Canada to the U.S. Gulf Coast and a winter storm warning has been issued in Houston, according to the National Weather Service. The service forecast snow, sleet, and rain over parts of Texas and the central Gulf Coast through early tomorrow.
Gold added 0.2 percent to $1,264.50 an ounce. Futures climbed 1 percent this week, the fifth straight gain and the longest rally since September 2012, as declines in global equities spurred demand for the metal as an alternative investment.
West Texas Intermediate oil slipped 0.7 percent to $96.64 a barrel, falling for the first time in five days after settling at the highest level of the year yesterday.