Global stock indexes declined for a fourth day and copper dipped to near four-year lows before rebounding yesterday as increasing concern about China’s economic slowdown unnerved investors.
The concerns over China also pressured the Chilean peso and other currencies closely linked to commodities markets, while increasing investor appetite for safe-haven assets boosted US government bonds and gold.
The moves follow China’s first domestic bond default, which has raised concerns about a possible unraveling of the many loan deals which have used the metal as collateral.
Chinese firms that have difficulty raising loans have often bought copper as security for funds they borrow, but the 14 per cent drop in copper’s value this year is making banks more wary about the practice.
Data, including China’s recent weak export numbers, has underscored worries that the world’s second-largest economy is slowing.
“China has been a concern with its economic data which have been on the softer side. We have been weak with commodity currencies so far this week,” said Dean Popplewell, chief currency strategist at Oanda.
Copper on the London Metal Exchange slid to a session low of $6,376.25 a tonne, its weakest level since July 2010, before recovering to end at $6,505, up 0.5 per cent from Tuesday’s close. Three-month LME copper has shed more than 11 per cent this year, including a 2.6 per cent drop on Tuesday.
On Wall Street, the Dow Jones industrial average fell 28.47 points or 0.17 per cent, to 16,322.78, the S&P 500 lost 2.28 points or 0.12 per cent, to 1,865.35 and the Nasdaq Composite added 9.206 points or 0.21 per cent, to 4,316.394.
Signs of progress in diplomatic attempts to ease tensions surrounding Ukraine helped equities pare earlier declines.
US Secretary of State John Kerry will meet with his Russian counterpart, Sergei Lavrov, in London tomorrow ahead of a referendum Sunday on whether the Ukraine’s Crimean peninsula will join Russia.
“People are just kind of reassessing, they are looking at that headline and thinking maybe it is not going to turn out to be a disaster in Russia and Ukraine,” said Ken Polcari, director of the NYSE floor division at O’Neil Securities in New York.
Shares of Fannie Mae dropped 9.4 per cent to $3.65 and shares of Freddie Mac were down 13.6 per cent at $3.48 after the leaders of the Senate Banking Committee on Tuesday announced an agreement on legislation to wind down the government-owned mort-gage financiers.
The yield premiums on Fannie Mae and Freddie Mac bonds over Treasuries shrank broadly on the view the Senate plan would assure the government’s guarantee of the companies’ existing debt. For example, the yield gap between the five-year Fannie Mae note due February 2019 over five-year Treasuries narrowed 0.005 percentage point to about 0.15 percentage point.
In Europe, shares closed down 1.0 per cent, while an index of global stocks was down 0.6 per cent. Miners and other stocks sensitive to global growth trends came under pressure. In the foreign exchange market, emerging market currencies fell, partly on investor nervousness over China’s economy.