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New York - Stocks slid with commodities after central banks in the US and Japan signalled increased concern about the global economic outlook. Gold and bonds rose on haven demand, while the yen climbed to the highest since 2014.
The Stoxx Europe 600 Index fell for a sixth day out of seven and US crude headed for its longest losing streak since February. Bond yields sank to records in Germany, Australia and Japan after Federal Reserve chair Janet Yellen said next week’s UK vote on European Union membership was a factor in deciding to hold interest rates steady. The yen surged as the Bank of Japan refrained from adding any stimulus to slow an advance prompted by Brexit concerns.
A selloff that erased $2.4trn from global equities in the past week resumed as central bank policy reviews exacerbated investor anxiety at a time when volatility in global markets is surging before the UK vote on a Brexit. The BOJ’s decision to leave its record monetary stimulus unchanged came less than 12 hours after the Fed reined in its projection for interest rate increases over the next two years, with Yellen saying some of the economic forces holding down US borrowing costs may be long-lasting.
“The very dovish comments from Janet Yellen didn’t bring much support,” said Guillermo Hernandez Sampere, the head of trading at MPPM EK in Eppstein, Germany, who helps manage €220m. “The market took a breather yesterday but there was nothing more to it. There aren’t enough buyers out there to prevent the downside. The more people are talking about a possible Brexit the more it creates fear among investors.”
The odds of the Fed raising key borrowing costs this year are now below 50%. About 28% of economists in a Bloomberg survey had forecast additional easing at this BOJ meeting, with 55% looking to the next gathering in July. The Bank of England on Thursday kept the benchmark interest rate at a record low and reiterated that quitting the EU could damage the economy.
Stocks
The Stoxx 600 retreated 0.8% at 12:02 p.m. in London, after earlier losing as much as 1.4%. More than 500 of the gauge’s members slid, with miners and banks falling the most. UBS Group AG fell 1% and Credit Suisse Group dropped 2.6% after the Swiss National Bank said the lenders need to take further measures to meet the country’s new capital requirements.
“It’s a clear sign for the banks that capital requirements are taken very seriously and this result will be copy-pasted to other European banks,” said Hernandez Sampere.
“It won’t take long until we start speaking about German and French banks too. Financial institutions would suffer from a Brexit - they would lose another opportunity to make profits and this low interest environment is already tough.”
Futures on the S&P 500 slipped 0.3%, indicating US equities will extend losses for a sixth day. Investors will look to data Thursday on initial jobless claims, business sentiment and inflation for further indication of the health of the world’s biggest economy and the trajectory of interest rates.
Japan’s Topix lost 2.8% as the yen surged. The MSCI Emerging Markets Index slid 1% to a three-week low.
Rand among worst currency performers
The pound dropped towards a two-month low versus the dollar as the BOE left policy unchanged at its final meeting before the June 23 referendum.
Governor Mark Carney also hit back against critics who accused him of supporting the UK’s membership in the EU as a new poll showed the Leave campaign holding its lead ahead of next week’s referendum. The currency weakened against 11 of its 16 major peers, slipping to a three-year low versus the yen.
The Swiss National Bank kept its rates unchanged on Thursday. Officials there have said the British vote has the potential to cause “enormous stress” in Europe.
The yen jumped 1.8% to 104.16 a dollar, strengthening for a fifth day. The currency gained against all 31 major peers. BOJ governor Haruhiko Kuroda said the authority will be monitoring currency movements closely, indicating a risk of intervention.
“The BOJ was facing too much of a headwind in the market,” said Yunosuke Ikeda, head of Japan foreign-exchange research at Nomura Securities. “Ineffective easing would just question their credibility.”
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, fell 0.1%, following a 0.3% decline on Wednesday. Fed officials continue to forecast two 25 basis-point rate hikes this year, after leaving the target range for the benchmark interest rate unchanged at 0.25% to 0.5%.
New Zealand’s kiwi was up 0.2%, having earlier risen as much as 0.8% after data showed the economy expanded 2.8% last quarter from a year earlier, exceeding the 2.6% growth projected by analysts.
Russia’s rouble slid 0.5% and the rand dropped 0.6%, among the worst performers in emerging markets, as commodities declined.
Bonds
The yield on Germany’s 10-year bonds fell below minus 0.03% for the first time, while Japan’s reached as low as minus 0.21%, and Australia’s dipped below 2% for the first time.
The rate on similar-maturity US Treasuries dropped one basis point to 1.56%, headed for the lowest close since August 2012. The yield on 30-year debt fell to the lowest level in 16 months.
The Markit iTraxx Europe Crossover Index of credit-default swaps on sub-investment grade corporate bonds rose seven basis points to 379 basis points. A measure of swaps on investment-grade company debt climbed one basis point to 88 basis points. Both indices are at the highest in more than three months.
Commodities
Gold jumped to the highest level since January 2015. Bullion for immediate delivery advanced 1% to $1,304.45 an ounce. Prices have surged 23% this year as increasing global economic and political risks drive investors to havens.
Silver rose 0.9% as assets in exchange-traded funds backed by the precious metal climbed to a record. Nickel and copper led a decline in industrial metals.
West Texas Intermediate crude fell 1.5% to $47.29 a barrel and Brent dropped 1.5% to $48.22, on speculation that easing global supply disruptions will offset a decline in US crude stockpiles.
Output in Canada is expected to ramp up this month after wildfires cut production. While US crude inventories dropped for a fourth week to 531.5 million barrels, they remain about 33% above the five-year seasonal average, the US Energy Information Administration said on Wednesday.
