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Stocks Slump Amid Fear of Capital Flight U.S. Market Slump Easing; Europe and Asia Still Sliding
(about 3 hours later)
BRUSSELS — Stocks picked up Monday where they left off last week, with key indexes falling and emerging markets losing more ground amid fears of capital flight. Stocks remained under considerable pressure on Monday after a steep sell-off late last week. Key indexes around the world continued to fall and emerging markets lost more ground in the face of fears of capital flight.
Markets slumped across Europe and the Asia-Pacific region, with the Japanese benchmark Nikkei 225 dropping 2.5 percent to its lowest close since November. The London benchmark FTSE 100 index slid 3.3 percent as Vodafone Group shares tumbled 4.5 percent after AT&T announced that it would not make an offer for the British cellphone giant. Wall Street showed a few signs of stabilizing after its worst week since June 2012, while markets slumped across Europe and especially in the Asia-Pacific region.
Wall Street was mixed on Monday afternoon after its worst week since June 2012, with investors focused on corporate earnings from big names like Caterpillar and Apple. “We’re clearly favoring the developed world over emerging markets at the moment,” Philippe Gijsels, the head of research at BNP Paribas Fortis Global Markets, said. Investors had become cautious because of signs that some countries, including India, South Africa and Turkey, were having trouble.
“We’re clearly favoring the developed world over emerging markets at the moment,” Philippe Gijsels, the head of research at BNP Paribas Fortis Global Markets, said. Investors had become cautious amid signs that some countries, including India, South Africa and Turkey were having trouble. On Monday, the Dow Jones industrial average fell 41.23 points, or 0.3 percent, to close at 15,837.88. The Standard & Poor’s 500-stock index declined 8.73 points, or 0.5 percent, to 1,781.56. The Nasdaq composite index dropped 44.56 points, or 1.1 percent, to 4,083.61. All three indexes lost 2 percent or more on Friday.
“But what’s basically happening is that markets were overbought and they’re looking for an excuse to sell,” Mr. Gijsels said. “I don’t think this changes the overall story, I think this will probably create an opportunity to buy.” In Asia, the Japanese benchmark Nikkei 225 dropped 2.5 percent to its lowest close since November, while the Hang Seng in Hong Kong lost 2.1 percent.
After a broad decline in the value of the lira in recent days, Turkey’s central bank said on Monday that its monetary policy committee would hold an emergency meeting Tuesday evening “to take the necessary policy measures for price stability.” It said its decision would be announced at midnight. The currency rebounded after the announcement. In Europe, the FTSE 100 index in London fell 1.7 percent, while the DAX index in Frankfurt slid 0.5 percent.
Investors, fretting about slowing growth in China and the prospect that the Federal Reserve would continue to scale back its support of the United States economy, bailed out of emerging market currencies, with the Malaysian ringgit and Philippine peso both falling to levels last seen in 2010. Investors, fretting about slowing growth in China and the prospect that the Federal Reserve will continue to scale back its support of the United States economy, bailed out of emerging market currencies.
Investors in Japan were reacting to the additional concern of a stronger yen, which they fear may eat into earnings of Japanese exporters as it makes goods more expensive for customers overseas and less competitive globally. Investors in Japan were reacting to the additional concerns about a stronger yen, which they fear may eat into earnings of Japanese exporters by making goods more expensive for customers overseas and less competitive globally.
The Japanese currency, which tends to rise in times of uncertainty because it is considered a relatively safe asset, has climbed sharply against the American dollar over the past few trading sessions. On Monday, it was trading at about 102.61 yen per dollar, compared with ¥104.71 per dollar on Thursday morning. Data released on Monday showed that Japan’s trade deficit last year surged to ¥11.47 trillion, a record, as the country stepped up oil and gas purchases after the March 2011 earthquake. The global sell-off started to gather pace on Thursday after weak data from the Chinese manufacturing sector reinforced concerns about the strength of the Chinese economy. Although China is still expected to expand more than 7 percent this year, its growth is far less energetic than it once was.
In afternoon trading on Wall Street, the Dow Jones industrial average closed down 0.3 percent, the Standard & Poor’s 500-stock index sank 0.5 percent and the Nasdaq composite dropped 1.1 percent. “Our baseline remains that China can avoid a hard landing, but the risk will remain for the foreseeable future,” analysts at Société Générale wrote in a note on Monday.
The global sell-off started to gather pace on Thursday after weak data from the Chinese manufacturing sector reinforced concerns about the strength of the Chinese economy. Although China is still delivering robust growth — many analysts believe its economy will manage to expand more than 7 percent this year — its expansion is far less energetic than it once was, and is overshadowed by considerable risks and uncertainties as the authorities in Beijing seek to engineer a far-reaching shift in the economy. Events in Turkey, Argentina and elsewhere have fanned fears about emerging markets in general over the last few days. Political turmoil in Turkey helped send the Turkish lira to a record low against the dollar last week. This week, Turkey’s central bank said its monetary policy committee would hold an emergency meeting Tuesday evening “to take the necessary policy measures for price stability.”
“Our baseline remains that China can avoid a hard landing, but the risk will remain for the foreseeable future,” analysts at Société Générale wrote in a note on Monday. “Moreover, other emerging economies are likely to see a further slowing of growth momentum, and in some cases painful recession could prove hard to avoid.” All this has coincided with the prospect that the Federal Reserve will further scale back its economic stimulus program that has helped keep interest rates low worldwide. The prospect of waning stimulus has fanned fears that emerging markets around the world will now see much reduced inflows of cash as a result.
At the same time, country-specific events in Turkey, Argentina and elsewhere have fanned jitters about emerging markets in general over the past few days. Drawn-out political turmoil in Turkey helped send the Turkish lira to a record low against the dollar last week. In December, the Fed decided to cut back its monthly purchases of Treasury and mortgage-backed for the first time, to $75 billion from $85 billion. It is widely expected to reduce the bond purchases by another $10 billion at a two-day policy meeting that ends on Wednesday.
In Argentina, the central bank abandoned its support of the peso on Thursday, causing the currency to plunge 20 percent in recent days. And increasingly violent unrest on the streets of Bangkok has stirred worries about the economy in Thailand. The Thai stock market has held up relatively well in recent weeks, but on Monday it dropped nearly 2 percent. In the American bond market, interest rates edged slightly higher after falling on Friday. The yield on the Treasury’s 10-year note rose to 2.75 percent, from 2.72 late Friday, while its price fell 9/32, to 100.
All this has coincided with the possibility of a further dialing-back by the Federal Reserve of the bond-buying programs that have helped keep interest rates low worldwide. The prospect of waning monetary stimulus has fanned fears that emerging markets around the world will now see much reduced inflows of cash as a result.
In December, the Fed decided to cut back its monthly purchases for the first time, to $75 billion from $85 billion. It is widely expected to reduce the bond purchases by another $10 billion at a two-day policy meeting that ends on Wednesday.
The Fed meeting, earnings from several large American corporations, President Obama’s State of the Union address, several key economic releases, a meeting of European finance ministers and continuing concerns in emerging markets as the Lunar New Year approaches mean that the markets could take cues from any number of fronts, the Société Générale analysts wrote. That could make for a volatile week.