New York - Global stocks dropped more than 1
percent and the euro fell to a 3-week low against the dollar on Wednesday a day
after US central bank meeting minutes dented hopes for more economic stimulus
and a Spanish debt auction drew weak results.
Gold prices hit their lowest since early January, while US bonds
rallied as losses in the stock market enhanced the bid for safe-haven US
government debt.
Comments from European Central Bank President Mario Draghi that the
euro zone’s economic outlook is subject to downside risks related to the debt
crisis and commodity prices further weighed on the euro, as well as gold.
Draghi’s comments came in a news conference after the ECB announced
it was holding interest rates at record lows, as widely expected.
The Federal Reserve’s minutes from its March meeting, released
Tuesday, suggested the appetite for another dose of quantitative easing,
so-called QE3, has decreased.
The news further underscored the United States’ divergence from a
Europe facing recession.
“The punch bowl is being taken away by the Fed and the ECB, and the
markets don’t like these punch bowls being taken away. But it’s all part of
getting back to normal. It’s a sign that we don’t need artificial stimulus, so I
think the selloff is temporary,” said Doug Cote, chief market strategist with
ING Investment Management based in New York.
The MSCI all-country world equity index slid 1.9%, while the
three major U.S. stock indexes dropped more than 1%.
The FTSEurofirst 300 Index of top European shares fell 2.1% to close provisionally at 1 049.97.
The Dow Jones industrial average was down 148.11 points, or 1.12%, at 13 051.44. The Standard & Poor’s 500 Index was down 15.71
points, or 1.11%, at 1 397.67. The Nasdaq Composite Index was down 53.52
points, or 1.72%, at 3 060.09.
All 10 S&P 500 sectors declined, with energy, financial and
technology stocks leading the downturn.
Investors brushed aside data showing US employers created 209 000
new private-sector jobs in March, slightly above forecasts. A separate report
showed the pace of growth in the US economy’s services sector slipped in
March.
US stock exchanges will be closed on Friday for the Easter
holiday when the US monthly employment report, among the most widely watched
economic indicators, is due to be released.
The euro dropped 0.8% against the dollar to $1.3124. At the
trough of $1.3105, it was the lowest since mid-March.
“The market focuses back on Europe after Spain’s disappointing bond
auction,” said Camilla Sutton, chief currency strategist at Scotia Capital. “A
key theme is how strict austerity and low growth can turn into a euro negative
and vicious cycle.”
Spain sold €2.6bn government bonds, toward the lower
end of its target range and at higher yields than at previous auctions. Its
borrowing costs had been expected to rise, given growing concerns about its
public finances.
A T-bill sale in Portugal met with better demand than the auction
in Madrid, though the shorter-term nature of the debt meant its wider market
impact was muted.
Following the twin auctions, yields on Spanish benchmark 10-year
debt rose, and Spanish 5-year credit default swaps extended their early rise
after the auction, up around 460 basis points.
On Tuesday, Spain, which recently announced fresh budget cuts as it
slides back into recession, said its debt level is on course to reach a 22-year
high.
Commodities extend losses, bonds rise
Brent and US crude futures dropped, sharply extending declines
after a US government report showed crude oil inventories rose sharply in the
United States last week.
US crude dropped $2.31 to $101.70 a barrel. Brent crude slid
$1.79 to $123.07, having traded as low as $122.54.
Spot gold tumbled to $1 617.51, after earlier touching a low of
$1 612.30 an ounce, its lowest since Jan. 10.
The benchmark 10-year US Treasury note shot up 15/32, with the
yield at 2.247%, compared with 2.31% on Tuesday.