Global Markets Shudder – Tyler Vernon – The Wall Street Journal

Global Markets Shudder – Tyler Vernon – The Wall Street Journal

By KANA INAGAKI And MICHELE MAATOUK

Global stock markets skidded as a record drop in U.S. existing-home sales added to concerns about the global economy, pushing investors into bonds and less-risky assets.
The Dow Jones Industrial Average briefly dropped below 10000, the Japanese yen hit a 15-year high against the dollar, oil prices fell below $72 a barrel, and the U.S. Treasury’s benchmark 10-year note’s yield touched 2.467%, its lowest since March 19, 2009.
The Dow industrials recovered somewhat but still closed down 133.96 points, or 1.3%, at 10040.45. The Standard & Poor’s 500-stock index lost 15.49 points, or 1.5%, to 1051.87, and the Nasdaq Composite Index ended down 35.87 points, or 1.7%, at 2123.76.
The Stoxx Europe 600 index closed down 1.7% at 249.44. The U.K.’s FTSE 100 index fell 1.5% to 5155.95, France’s CAC-40 index dropped 1.7% to 3491.11, and Germany’s DAX shed 1.3% to 5935.44.
Construction and materials shares were the hardest hit in Europe, after Irish building-materials company CRH issued a profit warning as it posted worse-than-expected first-half results. Traders said the profit warning intensified doubts about the recovery in the world’s largest economy, after the company pointed to an unexpected slowdown in the U.S. market, to which it has significant exposure.
The news sent CRH shares nearly 17% lower and had a knock-on effect on the rest of the sector. Wolseley shares fell 5.1%, Saint-Gobain lost nearly 4.7%, and the Stoxx Europe 600 index for construction closed down 4.2%.
CRH’s fall also hit Dublin, where the ISEQ fell 5.6%.
European stock declines worsened late in the session, as data showed U.S. existing-home sales for July plunged 27.2%, to their lowest level in 15 years. The fall was nearly twice what analysts had expected.
Richard Batty, investment director at Standard Life Investments, said European markets have been very sensitive to weakness in U.S. housing and employment data in recent months amid uncertainty about the sustainability of the recovery. The data coming out of the U.S. has generally been weak since stimulus packages in housing and the auto industry came to an end, he said.
Earlier in Tuesday’s trading day, investors largely shrugged off the release of better-than-expected euro-zone industrial new-orders data, which showed factory orders rose 2.5% in June from May, versus expectations of a 1.5% increase.
Late in New York, the euro was at $1.2679, from $1.2663 late Monday, and sterling was at $1.5431 from $1.5516. The dollar was at 84.20 yen from 85.22 yen, after hitting 83.58 yen, its lowest level since 1995, following the housing data. The dollar was at 1.0303 Swiss francs, from 1.0412 francs.
Light, sweet crude for October delivery settled down $1.47 at $71.63 a barrel on the New York Mercantile Exchange. Gold for August delivery added 0.4% at $1,231.80 a troy ounce on the Comex division of Nymex.
The stronger yen, combined with growing market exasperation over Japan’s failure to tackle its economic issues, sent the Nikkei Stock Average to a 15-month low below 9000 and into bear-market territory.
With currency-sensitive exporters in the lead, the Nikkei fell 1.3% to 8995.14, culminating a 21% tumble from its peak of 11339.30 on April 5.
The index is now at its lowest level since May 2009, when the market was struggling out of the 2008 global financial crisis.
The ever-stronger yen was seen as the main culprit in the selloff, since it badly undercuts the profitability of bedrock corporates such as Sony, which dropped 3.7%, and Nikon, which skidded 4%.
Trying to put the brakes on the heavy selling of yen, Japanese Finance Minister Yoshihiko Noda called an evening news conference at which he described the yen’s sharp rise as “one-sided.”
He warned that disorderly foreign-exchange moves could hurt economic stability, but he avoided talk of any intervention.
Australia’s S&P/ASX 200 fell 1.1% to 4381.34, and Hong Kong’s Hang Seng Index was off 1.1% to close at 20658.71.
In major market action: Vedanta Resources skidded 7.6% after Indian authorities rejected the firm’s plan to mine for bauxite in the state of Orissa.
Copper miner Antofagasta dropped 1.5% after the group announced a 91% jump in first-half profit, but also said copper production would be below its original forecast for the year.
Other mining stocks also lost ground, with Rio Tinto dropping 4.3% and Anglo American falling 1.8%.
In Germany, shares of HeidelbergCement fell 4.9%, making the firm the biggest decliner in the DAX stock index.
Shares of steelmaker ThyssenKrupp dropped 2.4%.
Among a handful of stocks trading in the green was U.K. home builder Persimmon, which gained 0.4% after higher sales volumes and a stronger average selling price boosted profit and helped give the board the confidence to reinstate dividend payments.
Other house builders traded lower, with Barratt Developments ending down 3.2%.
Bank stocks were also down across the board, with France’s Société Générale and BNP Paribas among the worst performers. They lost 1.4% and 2.1%, respectively.
In the U.S., decliners handily outpaced gainers in NYSE Composite volume, which was thin.
The materials sector led the S&P 500’s drop as investors fretted about how demand for metals could be affected by economic weakness.
Late in the U.S. trading session, AK Steel was down 4.8%, U.S. Steel was off 3.6%, and Alcoa had lost 2.7%.
The health-care sector was also weak, weighed down by a 10% tumble in Medtronic. The medical-device giant’s fiscal first-quarter revenue surprisingly fell and the company cut its earnings and sales forecasts for the year.
Volatility increased, with the Chicago Board Options Exchange’s volatility index, or VIX, rising as much as 12% to reach its highest point since early July.
The VIX was up 5.9% late in the day.
“If people had confidence, they wouldn’t be pouring money into Treasury securities yielding nothing, and paying more than $1,200 for an ounce of gold,” said Morris Mark, president of Mark Asset Management. “They’re saying, ‘I don’t care if I get no real rate of return. Just give me my money back.’ There’s a total lack of confidence…. There’s a concern here that the strength of the world economy is not going to be able to get us out of this.”
Tyler Vernon, principal and portfolio manager at Biltmore Capital Advisors, said his firm is increasing its prediction for the likelihood of a double-dip following the report, which he described as “sort of a total disaster.”
On Wednesday, the German Ifo business climate index is due, while in the U.S., durable-goods orders and new-home sales data are on tap.
—Simon Kennedy
contributed to this article.