BLBG: Stocks Tumble With Bonds as Gold Slides in Global Rout
Stocks tumbled, with the benchmark index of global equities sinking the most in 19 months, and bonds fell around the world after the Federal Reserve said it may phase out stimulus and China’s cash crunch worsened. Gold led commodities lower as the dollar rallied for a second day.
The MSCI All-Country World Index (MXWO) lost 3 percent, the most since November 2011, and the Standard & Poor’s 500 Index sank 1.6 percent at 10:32 a.m. in New York. The 10-year Treasury note yield rose two basis points to 2.38 percent after reaching 2.47 percent, the highest since August 2011, as rates surged from New Zealand to Germany. Emerging-market assets fell with India’s rupee and Turkey’s lira touching record lows. The S&P GSCI gauge of raw materials slid 2.8 percent, the most since September, as gold sank below $1,300 an ounce for the first time since 2010.
Chairman Ben S. Bernanke said the Fed may start reducing bond purchases that have fueled gains in markets globally, and end the program in 2014 should risks to the U.S. economy abate. Data from China, the biggest developing-nation economy, indicated manufacturing shrank at a faster pace and the benchmark money-market rate climbed to a record.
“It’s a knee-jerk downward reaction because everyone is afraid that if you’re taking the punch bowl away that must be bad for markets,” Philip Orlando, the New York-based chief equity strategist at Federated Investors, which has about $380 billion in assets under management, said by telephone. “The market is choosing to ignore the good news embedded in the Fed’s comments. All it’s looking at is the reduction of the accommodation.”
Slump Extended
The S&P 500 (SPX) extended yesterday’s 1.4 percent drop as all 10 of its main industry groups retreated, led by energy and utility companies, with only 19 stocks advancing. Boeing Co., Walt Disney Co. and Intel Corp. lost at least 1.8 percent to lead declines in all 30 stocks in the Dow Jones Industrial Average, sending the gauge down as much as 221 points.
Ebix Inc. tumbled 44 percent as Goldman Sachs Group Inc. terminated an agreement to acquire the insurance-software maker after federal prosecutors opened an investigation into allegations of intentional misconduct.
An S&P index of homebuilders tumbled 4.9 percent even after sales of previously owned U.S. homes climbed more than forecast in May to the highest level since November 2009. Purchases of existing houses increased 4.2 percent to an annualized rate of 5.18 million from 4.97 million in April, National Association of Realtors figures showed today. The median forecast in a Bloomberg survey called for a 5 million rate of sales.
Economic Watch
Another report showed the index of U.S. leading indicators rose less than projected in May, a sign the world’s largest economy may take time to accelerate. The Conference Board’s gauge of the outlook for the next three to six months increased 0.1 percent after a revised 0.8 percent gain in April that was higher than initially reported. The median forecast of economists surveyed by Bloomberg called for a rise of 0.2 percent.
More Americans than forecast filed applications for unemployment benefits last week, with claims climbing by 18,000 to 354,000 in the week ended June 15 from a revised 336,000 the prior period, the Labor Department reported today. The median forecast of 46 economists surveyed by Bloomberg called for 340,000.
Volatility Gauges
Speculation that the Fed will begin withdrawing its stimulus measures has boosted trading in an exchange-traded note tracking U.S. volatility. The iPath S&P 500 VIX Short-Term Futures ETN was the third most-active ETF in the U.S. yesterday, with 86.7 million shares changing hands, according to data compiled by Bloomberg. While the Nikkei 225 Stock Average Volatility Index (VNKY) fell 3.6 percent today, a similar measure for Hong Kong’s Hang Seng Index jumped 7.7 percent.
The stock selloff pushed the MSCI gauge down 6.7 percent from the five-year high reached on May 21, the day before Bernanke raised the possibility of reducing stimulus should economic indicators improve. About $2.4 trillion was erased from global equity values over that stretch, with indexes in Hong Kong and Japan sliding more than 20 percent into bear markets.
Germany’s 10-year bund yield climbed as much as 12 basis points to 1.68 percent, a four-month high. Spanish bonds stayed lower, erasing six days of gains, as the nation sold 4.02 billion euros ($5.3 billion) of debt maturing in 2018, 2021, and 2023, compared with a maximum target of 4 billion euros.
Australia’s 10-year yield rose as much as 23 basis points to 3.65 percent, a level unseen since March 15, and New Zealand’s 10-year rate surged 30 basis points to 4.09 percent.
Treasuries, Dollar
Volatility in Treasuries as measured by the Bank of America Merrill Lynch MOVE Index (MOVE) was at 86.89 yesterday, the highest since June 2012.
The dollar strengthened against all of its 16 major peers, surging 1.6 percent to 97.99 yen and appreciating 0.9 percent to $1.3177 per euro.
The Australian dollar dropped for a fifth day amid the prospect of reduced Fed stimulus and fading growth in China, the nation’s biggest trading partner. It slid 1.3 percent to 91.71 U.S. cents and reached 91.64, the weakest since September 2010.
The JPMorgan Global FX Volatility Index increased to as high as 11.51 percent, the highest in a year. The average in the past 12 months is 8.66 percent.
European Shares
The Stoxx Europe 600 Index (SXXP) slid 2.6 percent, the most since March 2012, as all 19 industry groups retreated. Randgold Resources Ltd., a producer of the precious metal in Africa, led materials stocks lower, sinking 7.2 percent. BHP Billiton Ltd. and Rio Tinto Group, the world’s biggest mining companies, lost at least 2.5 percent.
The number of shares changing hands in Stoxx 600 companies today was 22 percent greater than the 30-day average, according to data compiled by Bloomberg. The VStoxx Index (V2X), which measures the cost of options hedging against moves in the Euro Stoxx 50 Index, climbed 12 percent.
The MSCI Emerging Markets Index (MXEF) slid 4.2 percent, the most since 2011. Benchmark gauges in Turkey and Indonesia tumbled more than 3 percent, India’s Sensex fell 2.7 percent and Russia’s Micex index lost 1.5 percent.
Investors are pulling money from emerging markets at the fastest pace in two years as slowing growth, prospects for lower stimulus and anti-government protests from Brazil to Turkey rattled investors. More than $19 billion left funds investing in developing-nation assets in the three weeks to June 12, the most since 2011, according to EPFR Global.
‘Another Round’
“We expect another round of correction in the period ahead, across the board, be it in emerging market currencies or emerging market fixed income,” a team led by Benoit Anne, head of strategy at Societe Generale SA in London, wrote in a report today. “We are positioned quite defensively.”
The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slid 3.3 percent to the lowest since Sept. 6, 2012. The preliminary reading of 48.3 for a Chinese Purchasing Managers’ Index released today by HSBC Holdings Plc and Markit Economics compares with the 49.1 median estimate in a Bloomberg News survey of 15 economists.
China’s seven-day repurchase rate, a gauge of interbank funding availability, rose to the highest since at least 2006. The central bank has refrained from using reverse-repos to inject funds into the interbank market since Feb. 7.
The cost of insuring against losses on corporate and sovereign bonds in the Asia-Pacific region surged to the highest since Aug. 2. The Markit iTraxx Asia index of credit-default swaps on 40 investment-grade borrowers outside Japan soared 18.5 basis points to 157.7 basis points.
Default Swaps
In Europe, default swaps linked to 125 investment-grade companies increased to a two-month high, with the Markit iTraxx Europe Index adding 11 basis points to 118. The Markit iTraxx Crossover Index of contracts on 50 companies with speculative-grade ratings jumped 43 to 486, the highest since March.
Gold for immediate delivery lost 3.9 percent to $1,298.67 an ounce, after dropping to $1,286.20, the lowest price since September 2010. Gold futures declined 5.5 percent in New York. Holdings (GDTRGOLD) in the SPDR Gold Trust, the world’s largest exchange-traded product backed by bullion, fell below 1,000 metric tons for the first time in four years. Silver plunged as much as 7.8 percent to $19.7345 an ounce, the lowest since Sept. 10, 2010, and palladium declined 3.5 percent, retreating for a sixth day in its longest slump in almost a year.
Copper for delivery in three months retreated 2.5 percent to $6,786 a metric ton on the London Metal Exchange. Nickel dropped as much as 3.5 percent to $13,701 a ton, the lowest price since May 2009.
West Texas Intermediate crude fell for a second day, declining 2.6 percent to $95.65 a barrel, the lowest level on the New York Mercantile Exchange since June 13. The volume of all futures traded was more than double the 100-day average.
To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net
To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net
