Market Watch | Stocks Slide as Central Banks Fail to Reassure; Yen, Gold Climb

LAGOS, Nigeria, Capital Markets in Africa: Stocks slid with commodities after central banks in the U.S and Japan signaled 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 to a four-month low and U.S. crude retreated for a sixth day in the longest losing streak since February. Bond yields sank to records in Germany, Australia after Japan as Federal Reserve Chair Janet Yellen said next week’s U.K. vote on European Union membership was a factor in the decision to hold interest rates steady. Japan’s currency surged more than 2 percent as the Bank of Japan refrained from adding any stimulus that could slow its advance from a rally prompted by Brexit concerns.

A selloff that erased $2.4 trillion 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 U.K. 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 U.S. borrowing costs may be long-lasting.

“The very dovish comments from Janet Yellen didn’t bring much support,” saidGuillermo Hernandez Sampere, the head of trading at MPPM EK in Eppstein, Germany, who helps manage 220 million euros ($248 million). “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 percent. About 28 percent of economists in a Bloomberg survey had forecast additional easing at this BOJ meeting, with 55 percent looking to the next gathering in July. The Bank of England will announce its policy decision at noon in London.

Stocks
The Stoxx 600 retreated 1 percent at 10:46 a.m. in London, for its sixth decline in seven days. More than 500 of the gauge’s members slid, with banks falling the most. UBS Group AG fell 1.3 percent, and Credit Suisse Group AG dropped 3.4 percent 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 percent, indicating U.S. 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 percent as the yen surged. The MSCI Emerging Markets Index slid 1 percent to a three-week low. 

Currencies
The pound dropped toward a two-month low versus the dollar as traders awaited the BOE’s final policy meeting before the June 23 referendum. Last month, Governor Mark Carney said Brexit could lead to a U.K. recession as the central bank downgraded its growth forecasts. 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 Thursday. Officials there have said the British vote has the potential to cause “enormous stress” in Europe.

The yen jumped 1.6 percent to 104.38 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 Co. “Ineffective easing would just question their credibility.”

The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, fell 0.2 percent, following a 0.3 percent 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 percent to 0.5 percent.

New Zealand’s kiwi was up 0.2 percent, having earlier risen as much as 0.8 percent after data showed the economy expanded 2.8 percent last quarter from a year earlier, exceeding the 2.6 percent growth projected by analysts.

Russia’s ruble and South Africa’s rand both dropped 0.4 percent, the worst performers in emerging markets, as commodities declined.

Bonds
The yield on Germany’s 10-year bonds fell below minus 0.03 percent for the first time, while Japan’s reached as low as minus 0.21 percent, and Australia’sdipped below 2 percent for the first time. The rate on similar-maturity U.S. Treasuries dropped one basis point to 1.56 percent, headed for the lowest close since August 2012.

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 indexes 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 percent to $1,304.74 an ounce. Prices have surged 23 percent this year as increasing global economic and political risks drive investors to havens.

Silver rose 1.1 percent 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 1.2 percent to $47.45 a barrel and Brent dropped 1.2 percent to $48.37, on speculation that easing global supply disruptions will offset a decline in U.S. crude stockpiles.

Output in Canada is expected to ramp up this month after wildfires cut production. While U.S. crude inventories dropped for a fourth week to 531.5 million barrels, they remain about 33 percent above the five-year seasonal average, the U.S. Energy Information Administration said Wednesday.

Source: Bloomberg Business News