The Standard & Poor’s 500 Index dropped 0.8% at 2:24 p.m. in New York. The gauge has lost 2.7% in the past five days after seven weeks of gains. The Stoxx Europe 600 Index capped a 5.8% slide for its worst week in three years. Brazil’s Ibovespa equity benchmark was poised to enter a bear market. West Texas Intermediate crude lost 3.1% to $58.12 a barrel. Ten-year Treasury note yields dropped to an eight-week low.
Oil is headed for a five-day drop of 12%, the 10th weekly slide since the start of October. The International Energy Agency (IEA) cut its forecast for global demand in 2015. While the lower fuel prices hurts producers, that’s boosting demand for bonds as central banks in Europe and Asia maintain stimulus to fight deflation. A gauge of consumer confidence in the U.S. rose more than forecast, adding to signs of strength in the world’s largest economy.
“Clearly the oil situation is driving things," Randy Warren, who manages more than $100 million at Exton, Pennsylvania-based Warren Financial Service and Associates Inc., said in a phone interview. “At first it was just oversupply of oil. But now it’s that, plus fear of a world economy that’s growing too slow. Those fears are definitely outweighing the positive signs we’re seeing domestically."
More than $1 trillion was erased from the value of global equities this week. Stocks around the world fell today after November Chinese factory production slowed more than estimated. The MSCI All-Country World Index lost 0.8%, extending a weekly rout to 3.2%, its worst since June 2013.
The Chicago Board Options Exchange Volatility Index, a measure of the cost of options on the S&P 500 known as the VIX, has jumped 69% this week, on track for its biggest weekly rally in more than four years.
Declining energy costs led to a a faster-than-forecast drop in wholesale prices in the U.S., signaling inflation pressures remain weak even as the world’s largest economy is expanding.
Persistently weak inflation has allowed Federal Reserve policy makers, who are scheduled to meet next week, room to keep interest rates near zero after ending monthly asset purchases in October as the economy strengthens.
“With falling oil prices and the stronger dollar, pipeline pressures are minimal," Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, said before the report. “There’s no real threat of higher inflation. The Fed has a lot more leeway."
Treasuries rallied, with benchmark 10-year yields sinking to the lowest since mid-October. The spread between Treasury 30- year bonds and five-year notes narrowed to as little as 120 basis points, its lowest level in almost six years as oil declines fueled demand for the longest maturities on bets inflation will slow.
“People can’t get enough of Treasuries," said Ira Jersey, an interest-rate strategist at Credit Suisse Group AG in New York, one of 22 primary dealers that trade directly with the Fed. “The risk-off sentiment continues."
The Bloomberg Dollar Spot Index fell 0.3% to extend a weekly decline to 0.6%. The gauge, which measures the greenback against a basket of major peers, had rallied for seven straight weeks amid signs of a strengthening U.S. economy.
U.S. equities briefly pared losses today as data showed Americans’ confidence rose in December to an almost eight-year high, pointing to a pickup in holiday-related purchases.
Data yesterday showed that retail sales rose 0.7% in November as consumers used some of the money saved at the gas pump to purchase electronics, clothing and furniture.
“Everything is pointing in the right direction for the consumer," said Paul Ashworth, chief U.S. economist at Capital Economics NA in Toronto. “We expect a pretty good run for consumption growth in the fourth quarter. It is a big boost for the economy."
Bill Gross, who joined Janus Capital Group Inc. in September, said there is “very little liquidity" in the corporate bond markets, especially in high-yield debt. “Everyone is trying to squeeze through a very small door," Gross said today in a Bloomberg Surveillance interview with Tom Keene.
A sharp decline in the price of oil has disoriented markets including changing the perception of the creditworthiness of corporates and countries, said Gross, who left Pacific Investment Management Co. after more than four decades to run an unconstrained fund at Janus.
In Venezuela, the government and state-run oil company owe $21 billion on overseas bonds by the end of 2016, an amount equal to about 100% of reserves. Those figures explain why derivatives traders aren’t only betting that a default is almost certain but that it will most likely happen within a year.
The MSCI Emerging Markets Index fell 0.7%, extending the slide in the past week to 4.7%, the worst week since June 2013.
Brazil’s Ibovespa was down 7.7% in the past five days and set for the worst week since 2012 and poised to enter a bear market. Petroleo Brasileiro SA extended a five-day slide to 18%.
West Texas Intermediate crude for January delivery dropped below $58 a barrel after closing yesterday at the lowest level since 2009. Brent crude slid 2.5% to $62.08 today.
Gold fell 0.4% to $1,223.01 an ounce, trimming a second weekly advance amid declining oil prices and prospects for higher U.S. interest rates.
The Stoxx 600 plunged 2.6% today, pushing its weekly slide to 5.8%, the most since September 2011. All 19 of the main groups in the index retreated in the past five days, with energy and resources producers leading the declines with losses of at least 8.5%.
Royal Dutch Shell Plc slid 3.2% today and BP Plc fell 3.3%. Rio Tinto Group dropped 2.4%.
“With oil furthering its decline, all commodities are under pressure, especially miners," Claudia Panseri, a global equity strategist at SG Private Banking in Paris, said by phone. “The recent data is pointing to a slowdown in China. For people expecting a turnaround in world GDP growth this is clearly a disappointment."
All of the 18 western-European markets declined. Greece’s ASE Index extended a drop this week to 20%, the most since 1987, amid concern a potential snap parliamentary election will open the door to anti-austerity leadership.
Credit-default swaps insuring $10 million of Greek debt for five years were quoted at $3.2 million upfront and $500,000 annually, according to CMA. That’s up from $3.1 million in advance yesterday and signals a 56% probability of default within five years. Greek corporate bonds slumped.
Japan’s Topix index gained 0.2%, paring this week’s decline to 3.2%. Japan heads for a parliamentary election on Dec. 14 after Prime Minister Shinzo Abe last month called for a referendum on his economic policies.
The Shanghai Composite Index finished 0.4% higher and was little changed over five days after a week that saw the biggest daily price swings in four years.
Russia’s ruble weakened 4.4% to a record 58.2805 per dollar. The currency is the worst performer this year after Ukraine’s hryvnia among more than 160 currencies tracked by Bloomberg worldwide. The dollar-denominated RTS slid 3%, extending this week’s slide to 12%.
Central bank Governor Elvira Nabiullina increased rates yesterday by 1%age point to 10.5%, only to see the ruble sink to an all-time low less than a minute later.
A rush for bonds pushed yields in Germany and six other euro-area nations to record lows today, while in the U.S, 30- year yields were set for the lowest close since 2012.
Norway’s krone weakened at least 0.2% against all of its 16 major peers after tumbling crude oil prices spurred the central bank to cut interest rates yesterday. It weakened as much as 1.5% to 7.397 per dollar, a level last seen in 2003, and dropped 0.9% to 9.1324 per euro. Bloomberg
Cecile Vannucci, Paul Dobson, Anchalee Worrachate and Stephen Kirkland in London, Jonathan Morgan in Frankfurt, Katia Porzecanski and Daniel Kruger in New York and Sree Vidya Bhaktavatsalam in Boston contributed to this story.