New York/ Johannesburg - Shares on Wall Street hit a one-month low on Monday, extending losses from across Europe as fears over out-of-control government debt on both sides of the Atlantic hit financial markets.
The S&P 500 index fell 2% dropping below 1 200 points for the first time since October.
The Dow and tech-heavy Nasdaq indices also lost about 2% each, following through on last week’s declines as a congressional “super committee” was expected to concede defeat in its bid to lower the US deficit.
South African stocks posted their biggest one-day drop in seven weeks, tumbling 2.5% as investor jitters sparked a sell-off in resources firms and others sensitive to global growth.
“There’s a lot of risk aversion taking place,” said Mitchell Gannaway, a trader at Thebe Stockbroking.
“The rand and anything to do with emerging markets are getting hammered, despite the fact that it’s the developed world that is experiencing all this.”
The JSE's Top 40 - (Tradeable)
[JSE:J200] index fell 2.46% to 27 732.14, booking its biggest one-day decline since early October, and its lowest close in a month. The broader All Share
[JSE:J203] index fell 2.2% to 31 116.01.
Rand sell-off
Equity investors also shrugged off the sell-off in the rand , which dropped more than 1.5% against the US dollar at one point on Monday.
A weaker rand is usually seen as a positive for South African companies, as it increases profits when overseas earnings are brought home.
In Europe, stocks hit 6-week lows as Moody’s warned about France’s rating outlook and Spanish yields rose following election of a new government.
World stocks as measured by MSCI were down 2.5% for a 12% year-to-date loss. More volatile emerging market stocks lost 2.8%.
In Europe - the heart of the debt storm - the FTSEurofirst 300 index tumbled 3.1%, bringing it down more than 17% lower for the year.
US oil prices fell 2% as well, sliding to around $95 a barrel from Friday’s close of above $97, and gold futures fell about 1% as risk aversion crossed over into commodities.
Investors took refuge in safe-havens, pushing up yields on benchmark 10-year US bonds down to 1.95% from 2.01% on Friday.
The dollar hit a six-week high versus a currency basket but then pared some of its gains after US existing home sales unexpectedly rose in October as low interest rates for mortgages and rising rents led more homebuyers into the market.
Light trading volume, expected throughout the week due to Thursday’s US Thanksgiving holiday, could add to market volatility, traders said.
“It isn’t just the failure of the (deficit) committee that’s causing investors to shun risk around the world, although I thought we would get some kind of last-minute deal,” said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.
“Between the continued concerns about Europe, especially France now, and the comments out of China, there are just so many ongoing problems.”