Tuesday, 22 September, 2015
Global Equities Sell Off as Commodities Sink, Treasuries Ga
(Bloomberg) — The trepidation that characterized last month’s turmoil is seeping back into global financial markets.
U.S. stocks joined a worldwide rout in equities as a selloff in commodities resumed. The widening Volkswagen AG emissions scandal did little to calm nerves, dragging down automotive shares on speculation it may lead to tougher regulations. Demand for safety assets bolstered the yen and Treasuries.
Equity volatility spiked from Europe to America as renewed concern about China’s strength sent raw-materials prices tumblingtoward the lowest level in more than a decade. With the world’s biggest miners under pressure and Volkswagen torpedoing industrial shares, investors sought government bonds and haven currencies just days after the Federal Reserve muddled the picture on its policy plans.
“When you see a rise in volatility it leads to investor uncertainty and any bad news has the opportunity to shake things up,” Joseph Betlej, who helps oversee $33 billion as vice president of Advantus Capital Management, said by phone. “People are questioning the strength of growth in the domestic economy and second guessing that the Fed must see something.”
Stocks
The Standard & Poor’s 500 Index tumbled 1.7 percent at
12:02 p.m. in New York, with the gauge headed for a third loss in four days since the Fed’s Sept. 17 decision to hold rates near zero.
The Chicago Board Options Volatility Index jumped 15 percent for its biggest rise since Aug. 24 on a closing basis, while Europe volatility gauge surged 19 percent.
“It’s a combination of confusion after the Fed deal and then the catalyst is the renewed drop in commodities and fear about China,” said Jim Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management Inc., which oversees $351 billion. “The market still needs to find a bottom here and I’m not sure we’ve done that yet.”
The Stoxx Europe 600 Index plunged 3.1 percent, with all but nine shares declining. Glencore Plc slid 14 percent, after slumping below 100 pence for the first time, to lead mining shares toward the lowest close since 2009.
Volkswagen tumbled anew after sinking 19 percent on Monday.
The manufacturer set aside about $7 billion to cover fallout from a scandal affecting 11 million cars.
Commodities
Industrial metals fell amid renewed concern over slowing economic expansion in China as the Asian Development Bank reduced its growth forecasts for the country, the biggest consumer.
“There is a rotation back to cash and bonds today as doubts on the outlook for global growth start to gather steam in the mind of investors,” said Daniel Weston, chief investment officer at Aimed Capital in Munich. “We have seen growth expectations weakening for some time, and now they seem too strong for the general markets to ignore.”
Copper fell 3 percent and zinc retreated 1.4 percent to the lowest since June 2010. Nickel dropped 1.4 percent as China’s imports of the refined metal slumped to the smallest in four months.
The Bloomberg Commodity Index slid 1.3 percent. West Texas Intermediate crude dropped 2.9 percent to $45.31 a barrel after rallying 4.5 percent on Monday. Brent slid 2.4 percent to $47.74.
Bonds
Markets are also whipsawing as investors digest conflicting signals from the Fed, with a fourth official talking up prospects for higher rates in 2015 after the rate decision on Thursday. Investors now put the probability of a rate rise in
2015 at less than 50 percent, and a lecture by Fed Chair Janet Yellen later this week may offer more clues as to when and if borrowing costs will increase this year.
“The Fed is clearly mindful of global disinflation pressures evident from lower commodity prices,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “Waning risk appetite is also providing a boost for Treasuries today.”
Government bonds rallied as the drop in commodities cooled the outlook for inflation, preserving the value of payments on fixed-income securities.
Treasury 30-year bonds climbed for the third time in four days, pushing the yield four basis points lower to 2.98 percent.
Currencies
The dollar reached its strongest level in almost two weeks against the euro amid diverging expectations for stimulus in the U.S. and Europe.
Fed Bank of Atlanta President Dennis Lockhart said he remains confident the U.S. will tighten this year, while European Central Bank Executive Board member Peter Praet said Monday policy makers “would forcefully react” if the central bank’s inflation goal is at risk.
The yen climbed on increased demand for haven assets. It’s the best-performing major currency in the past month, with the biggest gains coming versus those of commodity-producing nations including South Africa’s rand, New Zealand’s dollar and Brazil’s real.
Emerging Markets
The MSCI Emerging Markets Index of stocks fell for a second day, dropping 1.2 percent, with benchmarks for India, Russia, South Africa and Poland losing at least 1.5 percent.
Emerging-market currencies retreated for a third day, with a gauge tracking 20 developing-nation currencies weakened 0.7 percent, led by a 1.6 percent drop in South Africa’s rand as Brazil’s real touched a record low.
U.S. stocks joined a worldwide rout in equities as a selloff in commodities resumed. The widening Volkswagen AG emissions scandal did little to calm nerves, dragging down automotive shares on speculation it may lead to tougher regulations. Demand for safety assets bolstered the yen and Treasuries.
Equity volatility spiked from Europe to America as renewed concern about China’s strength sent raw-materials prices tumblingtoward the lowest level in more than a decade. With the world’s biggest miners under pressure and Volkswagen torpedoing industrial shares, investors sought government bonds and haven currencies just days after the Federal Reserve muddled the picture on its policy plans.
“When you see a rise in volatility it leads to investor uncertainty and any bad news has the opportunity to shake things up,” Joseph Betlej, who helps oversee $33 billion as vice president of Advantus Capital Management, said by phone. “People are questioning the strength of growth in the domestic economy and second guessing that the Fed must see something.”
Stocks
The Standard & Poor’s 500 Index tumbled 1.7 percent at
12:02 p.m. in New York, with the gauge headed for a third loss in four days since the Fed’s Sept. 17 decision to hold rates near zero.
The Chicago Board Options Volatility Index jumped 15 percent for its biggest rise since Aug. 24 on a closing basis, while Europe volatility gauge surged 19 percent.
“It’s a combination of confusion after the Fed deal and then the catalyst is the renewed drop in commodities and fear about China,” said Jim Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management Inc., which oversees $351 billion. “The market still needs to find a bottom here and I’m not sure we’ve done that yet.”
The Stoxx Europe 600 Index plunged 3.1 percent, with all but nine shares declining. Glencore Plc slid 14 percent, after slumping below 100 pence for the first time, to lead mining shares toward the lowest close since 2009.
Volkswagen tumbled anew after sinking 19 percent on Monday.
The manufacturer set aside about $7 billion to cover fallout from a scandal affecting 11 million cars.
Commodities
Industrial metals fell amid renewed concern over slowing economic expansion in China as the Asian Development Bank reduced its growth forecasts for the country, the biggest consumer.
“There is a rotation back to cash and bonds today as doubts on the outlook for global growth start to gather steam in the mind of investors,” said Daniel Weston, chief investment officer at Aimed Capital in Munich. “We have seen growth expectations weakening for some time, and now they seem too strong for the general markets to ignore.”
Copper fell 3 percent and zinc retreated 1.4 percent to the lowest since June 2010. Nickel dropped 1.4 percent as China’s imports of the refined metal slumped to the smallest in four months.
The Bloomberg Commodity Index slid 1.3 percent. West Texas Intermediate crude dropped 2.9 percent to $45.31 a barrel after rallying 4.5 percent on Monday. Brent slid 2.4 percent to $47.74.
Bonds
Markets are also whipsawing as investors digest conflicting signals from the Fed, with a fourth official talking up prospects for higher rates in 2015 after the rate decision on Thursday. Investors now put the probability of a rate rise in
2015 at less than 50 percent, and a lecture by Fed Chair Janet Yellen later this week may offer more clues as to when and if borrowing costs will increase this year.
“The Fed is clearly mindful of global disinflation pressures evident from lower commodity prices,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “Waning risk appetite is also providing a boost for Treasuries today.”
Government bonds rallied as the drop in commodities cooled the outlook for inflation, preserving the value of payments on fixed-income securities.
Treasury 30-year bonds climbed for the third time in four days, pushing the yield four basis points lower to 2.98 percent.
Currencies
The dollar reached its strongest level in almost two weeks against the euro amid diverging expectations for stimulus in the U.S. and Europe.
Fed Bank of Atlanta President Dennis Lockhart said he remains confident the U.S. will tighten this year, while European Central Bank Executive Board member Peter Praet said Monday policy makers “would forcefully react” if the central bank’s inflation goal is at risk.
The yen climbed on increased demand for haven assets. It’s the best-performing major currency in the past month, with the biggest gains coming versus those of commodity-producing nations including South Africa’s rand, New Zealand’s dollar and Brazil’s real.
Emerging Markets
The MSCI Emerging Markets Index of stocks fell for a second day, dropping 1.2 percent, with benchmarks for India, Russia, South Africa and Poland losing at least 1.5 percent.
Emerging-market currencies retreated for a third day, with a gauge tracking 20 developing-nation currencies weakened 0.7 percent, led by a 1.6 percent drop in South Africa’s rand as Brazil’s real touched a record low.
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