21/01/2016 06:07 AST
Turmoil returned to global markets as oil plunged and US stocks sank to the lowest levels in 21 months, fueling a rush into haven assets.
Corporate results exacerbated the rout, sending MSCI Inc.’s gauge of global equities to the brink of a bear market.
Russia’s ruble and Mexico’s peso fell to records, while bets mounted on an end to Hong Kong’s dollar peg.
Yields on 10-year Treasuries dropped below 2 per cent and the yen jumped to a one-year high.
“There are a lot of things behind” the selloff, said Steven Schwarzman, the chief executive officer of Blackstone Group LP, in an interview Wednesday with Bloomberg Television’s Erik Schatzker from Davos, Switzerland.”You have economic things such as the slowing of the US economy which has been pretty gradual.
You’ve got energy going down so quickly that you can almost get windburn.
You’ve got China as an issue which is is probably overdone. So when you put those factors together you have an unattractive brew along with the concern the Federal Reserve will raise rates and slow the economy further.”
Oil’s slump to a 12-year low is ripping through markets. Just on Wednesday, Royal Dutch Shell Plc said profit may drop at least 42 per cent in the fourth quarter and Saudi Arabia was said to order a halt in selling options used to bet against its currency peg.
US bonds now predict the slowest inflation since May 2009. A report on Thursday will probably show U.S. crude stockpiles expanded, exacerbating the global glut.
“What the market is focused on is Chinese hard landing fear, oil prices and the strength in the dollar,” Phil Orlando, who helps oversee $360 billion as chief equity-market strategist at Federated Investors in New York., said by phone.”Domestic economic fundamentals don’t matter, and that’s the point of this correction.
That’s when we start talking about the need to retest the summer lows and holding at that level to take us to long-term support.”
Stocks
The MSCI All-Country World Index fell 2 per cent at 9:31 am in New York, bringing its drop from a May record to 19 per cent, near the threshold for a bear market.
More than $15 trillion has been erased from the value of global equities in the period, according to data compiled by Bloomberg.
The Standard & Poor’s 500 Index slid 1.1 per cent to the lowest level since April 2014 on a closing basis.
Goldman Sachs Group Inc. slipped 0.3 per cent after reporting a 65 per cent drop in fourth-quarter profit as an agreement to settle a US probe into its handling of mortgage-backed securities reduced earnings. International Business Machines Corp. lost 7.2 per cent after the company’s 2016 earnings forecast missed projections.
Microsoft Corp. and Apple Inc. were among other technology companies down at least 1.3 per cent.
The S&P 500 trades at 15.4 times the forecast earnings of its members, in line with the index’s average of the past five years.
It’s more expensive than developed markets in Europe, where the Stoxx 600 Index trades for 13.8 times estimated earnings.
Investors are keeping close watch on progress in the economy as the markets tumble.
Data today showed the cost of living in the US dropped in December, led by a slump in commodities.
A separate report showed new-home construction unexpectedly fell last month, indicating the industry lost some momentum entering 2016. Shell slid 5.5 per cent and BHP Billiton Ltd. dragged commodity producers lower, falling 6.9 per cent after trimming its full-year iron ore output forecast.
Zurich Insurance Group AG declined 8.7 per cent after forecasting a second straight quarterly loss for its biggest unit.
The cost of living in the US dropped in December, led by a slump in commodities, and New-home construction in the US unexpectedly fell, government reports showed to day.
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