A weaker-than-expected report on US factory activity yesterday pushed global equity markets and the dollar lower, while adding to pressure on currencies and other assets in emerging markets.
US stock indexes added to losses, the dollar fell to its lowest against the Japanese yen since late November and the yield on the benchmark 10-year US Treasury note fell to its lowest since early November after release of the ISM factory sector report.
Emerging market stocks extended a two-week selloff as weak Chinese manufacturing and services data weighed, while the Turkish lira and South African rand weakened after policymakers poured cold water on expectations of higher local interest rates.
MSCI’s all-country world equity index fell 1.36 per cent while the pan-European FTSEurofirst 300 index of leading regional shares closed down 1.4 per cent.
MSCI’s emerging markets index fell 1.1 per cent to its lowest since August, a rate that was less than the fall in developed markets. Still, the EM index is down 7.5 per cent so far in 2014, compared with a five per cent drop in the S&P 500.
US manufacturing grew at a substantially slower pace in January as new order growth plunged the most in 33 years, driving overall factory activity to an eight-month low, the Institute for Supply Management said.
ISM’s index of US factory activity fell to 51.3 last month – its lowest since May – from a revised 56.5 in December. The reading was well below a median forecast of 56 in a Reuters poll of economists. Readings above 50 indicate expansion.
Stocks on Wall Street fell 1.5 per cent and gold prices rose about 1.5 per cent as the ISM reading rattled investors, even as data showed European manufacturers had a solid start to the year.
Slower growth in the Chinese goods-producing sectors, coupled with the new US data, raised concern about the health of the global economy.
The Dow Jones industrial average fell 238.96 points, or 1.52 per cent, at 15,459.89. The Standard & Poor’s 500 Index was down 31.65 points, or 1.78 per cent, at 1,750.94. The Nasdaq Composite Index was down 93.04 points, or 2.27 per cent, at 4,010.84.
The dollar index, a measure of the greenback versus basket of currencies, fell 0.26 per cent to 81.096 and the euro gained 0.24 per cent against the dollar to 1.317. The dollar fell 0.88 per cent to 101.13 yen.
US Treasuries yields fell to their lowest since early November, with the 10-year note rising 15/32 in price, pushing its yield down to 2.6113 per cent.
Gold for April delivery rose 1.5 per cent to $1,258.7 an ounce.
Brent crude oil dropped to a two-week low below $106 a barrel as the weak factory data from China stoked concerns about demand, but violence in Iraq and Syria limited the fall.