- German 10-year bund yields drop below zero for the first time
- China ETF sinks in extended trade as MSCI delays entry again
Stocks posted their longest slump since February, the British pound tumbled and demand for haven assets sent German 10-year bond yields below zero for the first time, as new opinion polls fueled anxiety that the U.K. will vote to leave the European Union.
The MSCI All-Country World Index fell for a fourth day as sterling slid to a two-month low. Ten-year Treasuries ended the session little changed after a rally in the safest government bonds sent yields to unprecedented levels across much of the world. The yen strengthened against all but one of its 31 major peers and U.S. oil retreated to $48.49 a barrel. The biggest U.S. exchange-traded fund tracking Chinese shares slumped in extended trade after MSCI Inc. said it will again delay the country’s inclusion in its benchmark indexes.
Britain’s referendum on its membership of the 28-nation bloc has emerged as a key focus for traders this week, even with central banks in the U.S., Japan and the U.K. set to review monetary policy. The movement in sovereign bond yields and measures of expected volatility indicate investors see the possibility of a so-called Brexit posing risks to the world economy. Five polls put the “Leave” campaign ahead of “Remain” ahead of the June 23 vote. Britain’s best-selling newspaper, The Sun, has backed leaving the EU.
Data Tuesday showed U.S. retail sales rose more than forecast in May, as the Fed started a two-day policy meeting. The futures market indicates there’s zero chance of an interest-rate hike this week, with the chances of an increase by the December meeting now less than 50 percent.
“It was nice to see a good retail sales number, but folded on top of that you have Brexit, speculation around the Fed and the market still near some highs,” said Richard Sichel, chief investment officer at Philadelphia Trust Co., which oversees $2 billion. “That’s causing investors to remain cautious.”
For more information and analysis on Britain’s EU referendum, click here.
The S&P 500 fell 0.2 percent to 2,075.32 as of 4 p.m. New York time, after losing as much as 0.7 percent during the session. The CBOE Volatility Index erased earlier gains to fall 2.2 percent, following a six-day advance. The measure of market turbulence known as the VIX jumped the most this year on Monday, posting its steepest two-day climb since August.
The Stoxx Europe 600 Index slid 1.9 percent to cap its steepest five-day decline since February, while a measure of euro-area stock volatility jumped 12 percent amid the anxiety over the Brexit polling. The MSCI Emerging Markets Index fell 0.8 percent, its steepest four-day decline since January, as equity benchmarks in Russia, South Africa, and the Philippines declined at least 1.3 percent.
Futures on Asian equity indexes signaled further losses there, with contracts on Japan’s Nikkei 225 Stock Average down at least 0.8 percent in Osaka and Chicago. Contracts on indexes from Sydney to Seoul dropped more than 0.2 percent in most recent trading.
The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF slipped 2 percent in after-market trading, as MSCI said China still needed to improve the accessibility of the A-share market to warrant inclusion in its indexes.
Yields on Germany’s 10-year bunds dropped three basis points, or 0.03 percentage point, to negative 0.01 percent, meaning that investors who buy and hold the securities until their due date will get back less than what they paid.
“Demand for haven assets is being driven by fear of Brexit and growth concerns,” said Jussi Hiljanen, head of European macro and fixed income strategy at SEB A/B in Stockholm. “Nobody buys bunds at these yield levels thinking they are attractive. Investors are buying bunds as a hedge against uncertainty.”
Treasuries maintained gains, with the yield on 10-year notes holding at 1.62 percent after falling over the previous five days. A measure of bond volatility jumped to a three-month high.
Ten-year Japanese yields fell to an unprecedented minus 0.175 percent and those on on similar maturity debt in Australia and New Zealand also touched fresh lows.
The pound weakened 1.1 percent to $1.4114, its lowest closing level since April 7. A gauge of the pound’s anticipated volatility over the next two weeks -- a period that includes the referendum -- climbed to the highest level on record.
Japan’s currency strengthened for a sixth day against the euro and gained versus all its major peers except for the Argentine peso. The Bloomberg Dollar Index, a gauge of the greenback against 10 major peers, rose 0.5 percent to its highest level in almost two weeks as investors dumped riskier currencies. The New Zealand dollar sank 1 percent.
The MSCI Emerging Market Currency Index dropped 0.4 percent to cap a 1.4 percent slide over the past four days. The Hungarian forint and Poland’s zloty led declines.
The yuan was down 0.1 percent early Wednesday in offshore trading, to 6.6084 per dollar after the MSCI announcement.
Commodities followed equity markets lower, with oil down for a fourth day. West Texas Intermediate crude slid 0.8 percent, while Brent declined 1 percent to $49.83.
The surplus in the global oil market is shrinking more quickly than expected and the market will be almost balanced next year as demand rises faster than production, the International Energy Agency said Tuesday.
Zinc led a decline in industrial metals, falling 2.8 percent, while copper lost 1 percent and aluminum gained 0.6 percent after Chinese smelters reached an agreement that could to cut production.
Gold climbed 0.1 percent in the spot market to $1,285.72 an ounce, touching its highest price since May 6.