Falling commodities prices and worries about China’s economy pulled stocks sharply lower yesterday, while bond yields declined and the dollar rose to a two-week high on bets US officials will soon hike interest rates.
Wall Street losses neared two per cent on selling, driven by falls in oil and copper, which also helped knock down shares in Europe and left the pan-European FTSEurofirst 300 stocks index off 3.3 per cent.
Wall Street’s Dow Jones industrial average was off 265.94 points, or 1.61 per cent, to 16,244.25 in early afternoon trading, the S&P 500 lost 34.75 points, or 1.77 per cent, to 1,932.22 and the Nasdaq Composite dropped 103.50 points, or 2.14 per cent, to 4,725.45.
Copper prices were down 3.9 per cent at three-week lows, while oil was off two per cent. The Chinese government’s efforts to stimulate growth by easing fiscal and monetary policy have failed to calm nerves in global markets.
“The market is fragile as it is,” said Art Hogan, chief market strategist at Wunderlich Securities in New York. “The volatility will continue until we get some clarity from the Fed and China.”
The US Federal Reserve last week kept rates near zero, citing turbulence in a tightly-linked global economy, including slowing growth in China. Atlanta Fed president Dennis Lockhart said on Monday a rate hike later this year was still possible.
The sell-offs in stocks and commodities boosted US Treasuries prices and other lower-risk government debt, such as German 10-year Bunds. Benchmark 10-year Treasuries notes were up 26/32 in price, yielding 2.1195 per cent.
Weakness in stock markets also helped lift the yen against the dollar, though the policy divergence between the Fed on the one hand and the European Central Bank and Bank of Japan on the other helped push the dollar to its highest since September 10 against a basket of currencies.
Though the Fed held policy steady last week, ECB officials have been stressing that monetary policy in the eurozone will remain loose for some time.
The euro was down 0.5 per cent at $1.1140, having hit a high of $1.1459 on Friday. The dollar eased 0.5 per cent to 119.96 yen but was still above Friday lows.
Oil prices fell as concern over global growth weakened the outlook for demand and traders took profits from Monday’s rise.
Brent crude, the global benchmark, was down 75 cents a barrel at $48.17.
Gold eased with stocks and commodities and also suffered from the speculation the Fed may still raise rates in 2015. It last traded at $1,1225.50, a decline of 0.75 per cent.
“We’re still in a situation where investors are going to wait and see when a hike will happen,” Capital Economics analyst Simona Gambarini said. “There’s going to be a bit of volatility around precious metals until the Fed eventually does hike rates.”