Thursday, January 7, 2016
China contagion has wiped $2.5 trillion off stocks in 6 days — not counting today
The Standard & Poor’s 500 Index capped its worst-ever four-day start to a year as turmoil in China spread around the world and billionaire George Soros warned that a larger crisis may be brewing.
The U.S. equities benchmark ended the first four days of 2016 lower by 4.9 per cent, while the Dow Jones Industrial Average has erased more than 900 points so far this year. Selling in global equities began in China, where shares fell 7 per cent after the central bank weakened the yuan an eighth day. Crude settled at a 12-year low, and copper dipped below US$2 for the first time since 2009. The yen reached a four-month high and gold surged on haven demand.
“China devaluing its currency sparks concern that the global growth engine is starting to slow and that creates a dump of any high-flying stocks or anything people perceive as risk,” said Yousef Abbasi, a market strategist at JonesTrading Institutional Services in New York. “When you start to worry about growth, you have crude oil down and it all ties together. It’s the new year and people are scratching their heads, they’re not quite ready to buy the dip.”
Fresh concern that China’s slowdown will hamper global growth has wiped US$2.5 trillion off the value of global equities this year, as the nation’s tolerance for a weaker currency is viewed as evidence policy makers are struggling to revive an economy that’s the world’s biggest user of resources. U.S. crude’s tumble toward US$30 a barrel heightened fears of disinflation and fuelled concern that junk-rated energy producers won’t be able to stay solvent.
Concern briefly eased after the China Securities Regulatory Commission announced the suspension of a new stock circuit- breaker that forced local exchanges to shut for the second day this week before the move gave way to anxiety that policy makers are struggling with how to contain the months-long turmoil in its financial markets.
“Chinese equity markets are highly volatile right now and anything they do to potentially stabilize that market improves the outlook for U.S. equities,” Krishna Memani, chief investment officer at Oppenheimer Funds Inc. in New York, said by phone. “They don’t have a whole lot of experience controlling and monitoring markets and they’ve been going about it ham-handedly making the situation far worse than it needs to be.”
In Canada the S&P/TSX composite index was down for a seventh consecutive day, off 278.59 points at 12,448.21.
The Standard & Poor’s 500 Index slid 2.4 per cent at 4 p.m in New York. The index is down 4.9 per cent this year, its worst start in data going back to 1928. The MSCI All-Country World Index fell for a fourth day, bringing its slide this year to 5.2 per cent.
The Dow Jones plummeted 392.41 points to 16,514.10, the S&P 500 lost 47.17 points to 1,943.09, while the Nasdaq declined 146.33 points to 4,689.43.
China’s devaluation revived the angst that sent financial markets into turmoil last summer, driving U.S. stocks to three- month lows Wednesday in a selloff led by commodity producers. Comments by Soros exacerbated market jitters after he told an economic forum in Sri Lanka today that global markets are facing a crisis and investors need to be very cautious.
The Stoxx Europe 600 Index slid 2.2 per cent. The rout this year in Europe surpassed 5 per cent, as Germany’s DAX fell below 10,000 for the first time since October. The MSCI Asia Pacific Index retreated 2.1 per cent. Benchmark stock indexes in Australia, Japan, Singapore and Thailand all lost more than 2 per cent.
The Hang Seng China Enterprises gauge of mainland shares listed in Hong Kong tumbled 4.2 perc ent, its lowest close since October 2011. The Shanghai Composite Index tumbled 7.3 perc ent before trading was suspended. New circuit breakers, which kicked in on Monday, have been criticized by analysts for exacerbating declines as investors scramble to exit positions before getting locked in by the halts.
After the halt, the securities regulator announced rules to limit selling by major shareholders when a ban expires this week. Later, the regulator suspended a new stock circuit-breaker, signalling that the country’s leadership may reconsider or change the system.
The dollar slumped, snapping its longest streak of gains since September, as the upheaval in China weighed on the outlook for higher rates in the U.S. The greenback reached its lowest since August versus the yen.
The yen, which has been the best-performing major currency so far this year amid the demand for safe-haven assets, rose 0.6 per cent to 117.77 per dollar, after touching 117.33, the strongest since Aug. 24.
Oil dropped to the lowest in 12 years as turmoil in China’s markets pushes crude closer to US$30 a barrel on concern that the economic slowdown in the world’s biggest commodity consumer is worsening.
West Texas Intermediate crude fell 2 per cent to US$33.29 a barrel.
Copper futures fell below US$2 a pound for the first time in more than six years as a slump across industrial metals deepened. The metal for March delivery tumbled as much as 4.7 per cent to US$1.99 a pound before settling at US$2.022, down 3.2 per cent. A gauge of world mining companies tumbled to the lowest since 2004 on Thursday, led by Freeport-McMoRan Inc. and Anglo American Plc.
Cocoa for March delivery fell for a fifth day to an eight-month low on ICE Futures U.S. in New York. The Bloomberg Commodity Index rose 0.1 per cent, rebounding from what would have been the lowest close since 1999 as crude erased losses.
Treasuries fluctuated as speculation that China will sell U.S. debt and the prospect of more Federal Reserve interest-rate increases limited the securities’ appeal as a haven. Yields on 10-year notes fell two basis points to 2.15 per cent after touching the lowest since October. Global economic weakness has boosted government debt to start 2016, pushing yields back below levels from when the Fed lifted rates Dec. 16.
Benchmark 10-year municipal-bond yields extended their steepest decline in almost four years. The appeal of munis and other fixed-income assets may grow after concerns that China’s slowdown will hamper global growth have wiped $2.5 trillion off the value of global equities this year.
Developing-nation stocks sank to the lowest since 2009, with the MSCI Emerging Markets Index tumbling 2.9 per cent. South Africa’s rand weakened to a record low against the dollar. The Ibovespa tumbled for a second day as a plunge in Brazilian industrial production added to concern that demand for the nation’s exports will weaken further as China’s economy slows.
Benchmark gauges in South Africa, Thailand, the Philippines and Abu Dhabi slid more than 2.5 per cent and those for Saudi Arabia, Dubai and Qatar tumbled at least 3 per cent. Russian markets were closed for a holiday.
A gauge tracking 20 emerging-market currencies dropped for a fifth day, capping its longest losing streak since October.
— With assistance from Dani Burger, Alan Soughley, Alexandra Scaggs, Mark Shenk, Luzi Ann Javier and Rachel Evans.