U.S. Stocks Sink as Oil Rout Deepens With Emerging-Asset Selloff
U.S. Stocks Sink as Oil Rout Deepens With Emerging-Asset Selloff
Global financial markets turned gloomy as the prospects for a Federal
Reserve interest-rate increase next week and a drop in oil helped spark a
selloff in riskier assets, from equities to commodities to high-yield debt.
U.S. stocks tumbled to a two-month low, with the Dow Jones Industrial
Average dropping more than 300 points, while shares in developing
nations extended the longest slump since June. Oil plunged below $36 a
barrel to cap its worst week in a year, and junk bonds had their worst
day since December 2012. Treasuries rallied with the yen on haven
demand.
“There’s
no where to hide out there and that’s why this is so brutal,” said
Kevin Kelly, the New York-based chief investment officer at Recon
Capital Partners, said by phone. “It seems like a redux of August when
the Chinese actually devalued their currency in anticipation of a Fed
rate hike and stronger dollar. There’s a lot of uncertainty with global
growth that is just factoring into the year-end positioning.”
Volatility
has returned to global financial markets just days before the Fed is
anticipated to raise rates for the first time in more than a decade.
With commodity prices at a 16-year low adding to concern that weakness
in China’s economy will spread, investors are seeking havens on
speculation that the change in central-bank policy will roil markets.
Adding to investor anxiety Friday was news that Third Avenue Management took the unusual step of freezing withdrawals from a credit mutual fund.
Stocks
The
Standard & Poor’s 500 Index slumped 1.9 percent to 2,012.37 at 4
p.m. in New York, to the lowest level since Oct. 14. The gauge sank 3.8
percent in the week. That’s the most since Aug. 21, when signs of
slowing growth from China to Europe rekindled concern that weakness
could spread to America.
“Certainly
you’ve got the commodity price declines that continue and that’s
leading to the stresses in the credit markets and when you see these
stresses in the credit markets, equities usually suffer,” said Sean
Lynch, co-head of global equity strategy for Wells Fargo Investment
Institute. “You don’t have as much margin of safety so when you have
some of these surprises to the markets, sometimes equities give a little
back.”
The iShares iBoxx $ High Yield Corporate Bond
exchange-traded fund, known by its ticker of HYG, tumbled 2.7 percent as
oil extended its loss. Trading in the high-yield ETF options
surged as billionaire investor Carl Icahnsaid more pain is coming. “The
meltdown in High Yield is just beginning," he wrote on his verified
Twitter account Friday.
Declines in the S&P 500 Friday may
have been exacerbated by the expiration of a large number of put options
on the S&P 500 and a related exchange-traded fund, according to a
research note from Marko Kolanovic, a JPMorgan Chase & Co.
strategist. Selling might accelerate further if the index slides below
2,000, he said.
The Chicago Board Options Volatility Index jumped
27 percent to 24.60, for a weekly surge of 66 percent, the most since
August. The VIX closed at its highest level since Sept. 4.
Traders
are pricing in a 72 percent chance that the Fed will raise rates at its
Dec. 16 meeting, with data out of the U.S. Friday showing growth in
retail sales and producer prices for November. That’s down from 80
percent earlier this week, amid the turmoil on financial markets.
The
Stoxx Europe 600 Index tumbled 2 percent, taking its weekly loss to 4
percent. The regional benchmark fell to its lowest level since October
and has sunk 7.7 in December amid a rout in commodity companies and
disappointment over the European Central Bank’s last meeting.
Currencies
Currencies
of commodity-exporting nations slumped as oil and iron ore prices
tumbled. Australia’s dollar extended its biggest weekly slide since
September. South Africa’s rand fell to a record, breaching 16 per dollar
for the first time, after President Jacob Zuma unexpectedly fired his
finance minister earlier this week. Brazil’s real, Norway’s krone and
Mexico’s peso also fell.
A gauge of 20 developing-nation
currencies fell 0.9 percent, sliding 2.2 percent in the week, the worst
performance since March. The ruble fell 0.6 percent on Friday. The
currency stayed lower after the Bank of Russia kept interest rates on
hold. Turkey’s lira dropped 1 percent.
The Bloomberg Dollar Spot
Index, which tracks the greenback against 10 major peers, rose 0.1
percent Friday to cap a weekly gain of 2.3 percent.
Bonds
Investors who piled into the riskiest
corners of the credit markets during seven years of rock-bottom
interest rates are getting a reminder of how hard it can be to cash out.
With outflows from U.S. high-yield bond funds running at the fastest
pace in more than a year, Martin Whitman’s Third Avenue Management took
the rare step of freezing withdrawals from a $788 million credit mutual
fund on Dec. 9.
The risk premium on the Markit CDX North American
High Yield Index, a credit-default swaps benchmark tied to the debt of
100 speculative-grade companies, rose 36 basis points to 514.52 basis
points, the highest since December 2012. BlackRock’s iShares iBoxx High
Yield Corporate Bond ETF, the largest fund of its kind, fell to the
lowest levels since 2009.
U.S. 10-year yields fell nine basis
points to 2.13 percent on Friday, compared with 2.17 percent on Dec. 31,
2014. The yield on similar-maturity German bunds was at 0.54 percent.
From
the U.S. to Greece to Japan, all major developed government bond
markets are poised to finish 2015 with a gain even as the Fed prepares
to raise interest rates.
All 26 markets tracked by Bloomberg are
poised to generate positive returns this year. Greek bonds led the gains
with an 18 percent rally after the nation received an international
bailout. Treasuries advanced 1 percent. Government securities also rose
in Japan, Germany and Switzerland, pushing yields on some maturities in
those nations below zero.
Emerging Markets
The MSCI Emerging
Markets Index dropped 2.2 percent to the lowest close since August. The
gauge dropped 5 percent in the week. Equity benchmarks in Indonesia and
South Africa lost at least 1.6 percent on Friday.
The Hang Seng
China Enterprises Index sank 1.5 percent, its seventh day of losses
and the Shanghai Composite Index slid 0.6 percent to a five-week low.
More than 30 senior executives of listed Chinese companies have gone
missing or faced government probes this year, according to the state-run
Securities Times.
The yuan fell 0.26 percent in Shanghai, taking
its five-day loss to 0.86 percent, on speculation China’s central bank
is taking advantage of a stronger dollar to weaken the currency before
the U.S. raises rates. The yuan declined the most since August in offshore trading as China published a new index that values it against a broad range of currencies.
Commodities
Oil
declined to the lowest level since 2008 in London amid estimates that
OPEC’s decision to scrap production limits will keep the market
oversupplied. West Texas Intermediate for January delivery slipped to
$35.62 a barrel for the lowest settlement since 2009.
Crude capped
its worst week in a year. The global oil surplus will persist at least
until late 2016 as demand growth slows and OPEC shows “renewed
determination” to maximize output, the International Energy Agency said
in a report released Friday.
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