Published: Friday June 22, 2012 MYT 7:07:00 AM
Updated: Friday June 22, 2012 MYT 1:57:06 PM
Global stocks, oil, gold sink on China, Europe, US data(update)
NEW YORK: Global stocks fell 2.0 percent and Brent crude oil ended at its lowest in 18 months o n T hursday as data showing Chinese, European and U.S. manufacturing activity had slowed further underscored worries about weaker global growth.
The disappointing data came just a day after the Federal Reserve extended its monetary stimulus program aimed at boosting the U.S. economy.
U.S. stocks posted their worst day in three weeks, adding to losses after Goldman Sachs recommended shorting the benchmark S&P 500 index.
Gold dropped 2.5 percent and nearly wiped out this year's gains, while the U.S. dollar posted its biggest gain in more than three months against major currencies.
The Fed's move disappointed foreign exchange investors who had hoped for a more aggressive policy.
Business activity across the euro zone shrank for a fifth straight month in June and Chinese manufacturing contracted, while weaker overseas demand slowed U.S. factory growth, surveys showed.
The data clouded the outlook for the world economy and compounded fears that Europe's debt crisis, coupled with slower growth in the United States and Asia, would hurt economies worldwide.
"Markets are worried about the slowdown, not only in U.S. figures but all around the world," said Jeffrey Saut, chief investment strategist at Raymond James Financial in St. Petersburg, Florida.
"The (stock) market was extremely overbought coming into this week, and the news gave it an excuse to sell off."
The Dow Jones industrial average dropped 250.82 points, or 1.96 percent, to end at 12,573.57.
The Standard & Poor's 500 Index was down 30.18 points, or 2.23 percent, at 1,325.51.
The Nasdaq Composite Index was down 71.36 points, or 2.44 percent, at 2,859.09.
World stocks, as measured by MSCI's global equity index, declined 1.8 percent and European shares ended down 0.5 percent.
On Wednesday, the Fed chose to extend its bondbuying program, dubbed "Operation Twist," rather than implement more extensive stimulus, as some had hoped.
The U.S. central bank made its decision after lowering forecasts for growth and employment in the world's largest economy in 2012 and 2013.
It said it would consider more stimulus measures if the situation worsened.
In Europe, preliminary manufacturing and service sector data across the 17nation euro area showed the downturn in the region was becoming entrenched as falling new orders and rising unemployment hit business confidence.
The survey data showed that Germany's private sector shrank in June for the second consecutive month, with manufacturing activity hitting a threeyear low.
A similar survey of private sector activity in China, compiled by HSBC, found its factory sector had shrunk for an eighth straight month in June on weaker demand for exports.
Economic growth in the world's most populous nation is widely expected to have slowed for a sixth consecutive quarter in April through June as the country feels the impact of the euro area debt crisis and property controls weigh on domestic demand.
In its note, Goldman Sachs cited Thursday's report from the Philadelphia Federal Reserve Bank, whose midAtlantic factory index registered a minus 16.6, an unexpected contraction in the region's business activity in June.
"We are recommending a short position in the S&P 500 index with a target of 1,285 (roughly 5 percent below current levels)," Goldman Sachs analysts said in the note.
Energy and materials shares led declines on the S&P 500, with the S&P energy sector index down 4 percent and the materials index down 3.3 percent.
In the oil market, Brent crude tumbled for a fourth session to end at the lowest level in 18 months.
August Brent crude closed at $89.23 a barrel, dropping $3.46, or 3.7 percent, and posted the lowest settlement for frontmonth Brent since Dec. 1, 2010.
NYMEX crude for August delivery closed at $78.20, down $3.25, or 4 percent, marking the lowest settlement for frontmonth U.S. crude since Oct. 4, 2011.
DOLLAR GAINS, GOLD TUMBLES
The dollar index, a measure of the greenback's performance against a basket of currencies, rose 0.8 percent to 82.241.
Spot gold fell 2.5 percent to $1,566 an ounce, having earlier hit a low of $1,563.88, within 10 cents of turning negative for the year, compared with the 2011 close at $1,563.80 on Dec. 30.
"When you see slowdown in China and in the United States and the debt crisis accelerate in Europe, it leads people to believe that we will have significant depreciation, especially when commodities and precious metals prices have been so tied into the monetary policy," said Jeffrey Sica, chief investment officer at SICA Wealth Management LLC, which oversees $1 billion in assets.
SPANISH BOND YIELDS DOWN
Spanish government bond yields fell sharply as Madrid tapped the markets with a sale of mediumterm debt, although at an increased cost.
Spain sold 2.2 billion euros of two, three and fiveyear bonds, slightly more than the relatively small stated target amount, but it relied on its domestic banks to absorb the issuance.
Tenyear Spanish government bond yields fell 15 basis points to 6.62 percent, having risen to almost 7.30 percent last week.
U.S. bond yields were down as well. Benchmark 10year Treasuries were last up 9/32 in price to yield 1.62 percent, down from 1.65 percent late on Wednesday. - Reuters
Reuters reportedon Friday afternoon
Asia stocks fall as US data darkens global outlook
SINGAPORE: Asian shares fell on Friday and the safe-haven dollar hovered near its highest in a week-and-a-half after weak manufacturing data from the United States, Europe and China heightened fears over the outlook for global growth.
A long-expected downgrade to the credit ratings of 15 of the world's biggest banks by ratings agency Moody's added to the gloom, which also weighed on commodities and currencies such as the Australian dollar that are linked to resource demand.
MSCI's broadest index of Asia Pacific shares outside Japan fell 1.4 percent and Tokyo's Nikkei share average lost 0.5 percent.
"It was expected that the market would undergo an adjustment after earlier climbs, and the soft data gave it a reason," said Lee Seung-woo, an analyst at KDB Daewoo Securities in Seoul.
Analysts at Citi said Asian stock markets outside Japan had suffered $1 billion in redemptions in the seven-day period that ended Wednesday, the biggest factor in a net outflow of $243 million from global emerging market equity funds.
U.S. stocks fell around 2 percent on Thursday, racking up Wall Street's worst loss in three weeks, after a survey showed U.S. factory growth at its slowest in 11 months in June.
That followed data showing the euro zone's private sector shrank at its fastest pace in three years this month, while Chinese manufacturing contracted for an eighth straight month.
Losses on Wall Street worsened after a bearish call from Goldman Sachs, which advised clients to bet on further falls in the broad S&P 500 index on expectations of more weakness in the economy.
"We are recommending a short position in the S&P 500 index with a target of 1,285," (roughly 5 percent below current levels), Goldman said in a note.
S&P 500 index futures traded in Asia were up 0.2 percent on Friday, pointing to a slight rebound when the market resumes.
COMMODITIES SLIDE
The darkening outlook for the world economy has sparked a sharp sell-off in commodities this week, with Brent crude oil falling below $90 a barrel for the first time in 18 months.
Brent crude rebounded 0.7 percent to $89.88 a barrel on Friday, but remained down almost 8 percent on the week.
"Manufacturing is a key indicator of oil demand, and based on the data coming out of the United States it doesn't look good, even though prices have been coming off," said Ben Le Brun, a Sydney-based market analyst at OptionsXpress.
Copper eased a touch further, after tumbling in the previous session, to trade around $7,330 a tonne, on course for its seventh weekly loss in the past eight weeks.
The dollar was steady against a basket of major currencies , after gaining nearly 1 percent on Thursday in its biggest rally in more than three months.
The euro was traded around $1.2557, up 0.1 percent on the day but well off the week's peak of $1.2748 scaled on Monday. The Australian dollar bought $1.0054, having dropped more than 1.3 percent from Thursday's high of $1.0205.
Gold slipped 0.2 percent to around $1,563 an ounce, after falling 2.5 percent on Thursday to wipe out almost all its gains of 2012 as the worries over the global economy robbed the precious metal of its inflation-hedge appeal.
The retreat from riskier assets pushed investors towards safe-haven government debt, with Japanese government bonds following U.S. Treasuries higher.
The 10-year JGB yield slipped half a basis point to 0.815 percent, within 2.5 basis points of its nine-year low of 0.790 percent hit on June 4. - Reuters
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