(Photo by Behrouz MEHRI / AFP)
NEW YORK – Stocks slumped worldwide on Friday despite a drop in bond yields, as rattled investors did not step in to pick up bargains.
The dollar rose against its main rivals in anticipation of the US Congress later Friday voting later Friday on President Joe Biden’s enormous $1.9-trillion economic rescue package.
Oil prices fell after striking 13-month peaks Thursday on keen demand.
Vaccine rollouts, slowing Covid-19 infection rates, and Biden’s stimulus package have sent stocks up in recent weeks. But that good news is proving to be a double-edged sword for traders as they weigh the much-needed return to pre-pandemic life against the prospect that prices could rise, possibly sharply.
There is a worry that surging inflation could threaten one of the key pillars of the rally on world markets from their March nadir: record-low borrowing costs.
Alarm bells have been ringing for weeks as the yield on benchmark 10-year US Treasuries climbed to one-year highs earlier this week as investors moved out of the safe haven of government bonds.
Yields on government debt also have advanced around the world, from New Zealand and Australia to France, Germany and Japan.
Equity markets in Europe and Asia picked up the negative momentum from Thursday’s bruising session on Wall Street.
Asia suffered one of its worst sessions since the dark days of last March’s collapse. Losses then rolled over into Europe and onto Wall Street despite bond yields falling back and a muted US inflation reading for January.
Only the Nasdaq bucked the trend, finishing Friday’s session up 0.6 percent. Even with that gain, the tech-rich US index dropped about five percent for the week.
Market analyst Chris Beauchamp at trading platform IG said “it is clear that very few investors are willing to step up and buy the dip, at least for the time being.”
He noted that shares in mining, oil and financial companies which have climbed in recent weeks have borne the brunt of the selling
“This is the most serious move to the downside in months” except for a swoon in the market in mid-January, Beauchamp said.
Uncertainty reigns
CMC Markets UK analyst Michael Hewson said “while bond yields have retreated from their highs for the week, there is still a fair degree of uncertainty about their overall future direction, in light of the rapid speed of the moves seen in the past week or so.”
The global sell-off came despite reassurances from Federal Reserve chief Jerome Powell this week that US interest rates will not rise for the foreseeable future.
“Investors are clearly spooked despite the best efforts of Jerome Powell,” Craig Erlam, market analyst at Oanda trading group, told AFP.
And Oxford Economics said markets were “misreading the Fed’s reaction function.”
“While inflation will undoubtedly warm up in 2021, it’s unlikely to spiral out of control amid a lingering demand gap in some sectors of the economy and anchored inflation expectations,” Oxford Economics said in an analysis.
Key figures around 2150 GMT
New York – Dow: DOWN 1.5 percent at 30,932.37 (close)
New York – S&P 500: DOWN 0.5 percent at 3,811.15 (close)
New York – Nasdaq: UP 0.6 percent at 13,192.34 (close)
London – FTSE 100: DOWN 2.5 percent at 6,483.43 (close)
Frankfurt – DAX 30: DOWN 0.7 percent at 13,786.29 (close)
Paris – CAC 40: DOWN 1.4 percent at 5,703.22 (close)
EURO STOXX 50: DOWN 1.3 percent at 3,636.44 (close)
Tokyo – Nikkei 225: DOWN 4.0 percent at 28,966.01 (close)
Hong Kong – Hang Seng: DOWN 3.6 percent at 28.980.21 (close)
Shanghai – Composite: DOWN 2.1 percent at 3,509.08 (close)
Euro/dollar: DOWN at $1.2070 from $1.2166 at 2200 GMT
Pound/dollar: DOWN at $1.3929 from $1.4141
Euro/pound: UP at 86.66 pence from 86.04 pence
Dollar/yen: UP at 106.55 yen from 105.87 yen
Brent North Sea crude: DOWN 1.1 percent at $66.13 per barrel
West Texas Intermediate: DOWN 3.2 percent at $61.50 per barrel