Stocks tumbled around the world, with U.S. equities headed for their lowest levels in 15 months, and bonds and gold jumped as oil’s plunge below $30 sent markets reeling. Treasuries extended gains as economic data and earnings added to concern that global growth is faltering.
The Dow Jones Industrial Average sank 450 points, European stocks fell into a bear market and the Shanghai Composite Index wiped out gains from an unprecedented state-rescue campaign as global equities added to the worst start to a year on record. Oil touched $29.28 a barrel as Iran prepares to export into a global supply glut. A measure of default risk for junk-rated U.S. companies surged to the highest in three years. Yields on 10-year Treasury notes dipped under 2 percent as doubts grow that the Federal Reserve will raise interest rates. Gold surged 1.6 percent with the yen on haven demand.
Crude’s drop to a 12-year low is sending shock waves around the world at the same time concern is mounting that China’s policy interventions will fall short of stoking growth in the world’s second-largest economy. Figures on retail sales and manufacturing Friday showed the U.S. economy ended the year on a weak note, and the start of 2016 wasn’t any better. Energy firms are laying off workers and currency markets from commodity- producing countries are in turmoil. The slump is also denting the outlook for inflation, causing traders to curb bets on how far the Fed will raise rates this year.
“Markets have to go through several stages and right now they’re just holding their head and crying,” Krishna Memani, chief investment officer at Oppenheimer Funds Inc. in New York, said by phone. “The drama and issue overnight is more related to oil prices not finding a floor. If it was just China and everything else was OK, we’d see through that. But when China is down and oil drops everyday, the market recognizes it has substantial issues.”
Adding to the unease, Intel Corp. dropped 10 percent after predicting first-quarter sales that fell short of some estimates. The semiconductor maker’s note of caution came at the start of an earnings season that may see U.S. profits fall faster than any time since the financial crisis.
The Standard &Poor’s 500 Index plunged 2.7 percent at 1:28 p.m. in New York, falling past its August trough to the lowest level since October 2014. The gauge has lost 12 percent from its May record, leaving it well short of sliding into a bear market. It’s headed for a third weekly decline, the longest slide since July. The Dow tumbled 463 points as none of its 30 members advanced, while small caps added to a bear market.
Weakness in retail sales compounds concerns that momentum in consumer spending, which has been the backstop of U.S. growth prospects, is starting to fade. Meanwhile, a slowdown in China and other emerging markets has sent commodity prices lower and roiled stock markets around the world, exacerbating the plight of manufacturers who are being hit by an appreciating dollar.
The Stoxx Europe 600 Index retreated 2.8 percent, capping a weekly drop of 3.4 percent. Europe’s benchmark closed more than 20 percent from its record in April — meeting the common definition of a bear market.
West Texas Intermediate crude fell as much as 6.2 percent, before trading 5.8 percent lower at $29.40 a barrel. Brent fell 3.9 percent to $29.69 a barrel. The discount on global benchmark Brent reached a five-year high as Iran moved closer to restoring exports.
While WTI is down 10 percent for the week, Goldman Sachs Group Inc. says crude will turn into a new bull market before the year is out as the price rout shuts down production, putting the U.S. shale-oil boom into reverse in the second half of the year. As U.S. production slumps by 575,000 barrels a day, global oil markets will tip from surplus to deficit, the bank said in a report.
Gold headed for the biggest gain in six weeks as Chinese stocks retreated into a bear market and U.S. retail sales capped the weakest year since 2009, increasing demand for a haven. Platinum fell to a seven-year low. The metal has been whipsawed this week, after rallying to a two-month high last Friday.
The Bloomberg Commodity Index, which measures returns on 22 raw materials, dropped 1.5 percent to the lowest level in data going back to 1991.
The MSCI Emerging Markets Index fell 2.2 percent on Friday and 4.5 percent this week. Shares in Shanghai entered a bear market for the second time in seven months, dropping more than 20 percent from its December high and sinking below its low during the depths of a $5 trillion rout in August.
The Shanghai Composite Index sank 3.6 percent on Friday, extending losses after a report that some banks in Shanghai have halted accepting shares of smaller listed companies as collateral for loans. The Hang Seng China Enterprises Index of mainland stocks listed in Hong Kong fell 2.6 percent to a four- year low.
Energy producers dragged Russia’s Micex index down 3.6 percent, extending this week’s drop to 7.3 percent, it’s worst performance for the period since March 2014. Brazil’s Ibovespa slid 2 percent. India, South Korea, Poland and Thailand lost at least 1 percent.
Russia’s ruble sank 2 percent and South Africa’s rand fell 1 .3 percent, leading a gauge of emerging-market currencies down 0.5 percent, capping its third weekly decline. Over the five day period, the ruble slid 3.7 percent and the rand lost 2.1 percent. Brazil’s real and Mexico’s peso lost at least 0.9 percent on Friday.
The Hong Kong dollar fell 0.15 percent to HK$7.7933 per dollar, taking its two-day drop to 0.4 percent, the most since October 1992. The global foreign-exchange situation is complicated and it’s possible the currency will decline to the weaker side of the peg, the city’s Financial Secretary John Tsang told reporters. The existing exchange-rate system limits declines to HK$7.85 and caps gains at HK$7.75.
Australia’s dollar slid 1.7 percent to the weakest level since April 2009. The Canadian dollar fell for an 11th straight day in its longest run of losses on record. New Zealand’s kiwi slumped 1.4 percent.
The yen appreciated against all its 16 major peers as turmoil in markets boosted demand for havens. The euro also gained, while the Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 major counterparts, rose for a sixth day.
Treasury 10-year note yields fell below 2 percent to the lowest since October, casting doubt on the Fed’s ability to raise interest rates.
U.S. Treasuries gained as traders pulled back expectations for the number of Fed interest-rate increases this year. Data compiled by Bloomberg shows they expect the effective fed funds rate will rise to 0.7 percent in a year’s time, implying one increase, compared with policy maker estimates for four. The 10- year yield fell 10 basis points to 1.99 percent.
The risk premium on the Markit CDX North American High Yield Index, a gauge tied to U.S. junk-rated companies, surged to the highest level since November 2012. Junk-bond funds reported $2.1 billion of redemptions in the week through Jan. 13, according to data provider Lipper.
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