Stocks slid with the pound as signs of slowing growth in Europe and comments from Bank of England Governor Mark Carney rekindled anxiety over the global economic outlook. Bond yields tumbled to all-time lows, while crude oil sank.
Commodity producers and lenders were among the biggest drags on the S&P 500 Index Tuesday, as 10- and 30-year Treasury yields dropped to unprecedented levels. Sterling slumped to its weakest point since 2013 against the euro after Carney said risks from the U.K.’s vote to leave the European Union had started to crystallize. U.S. crude dropped below $47 a barrel after the world’s top oil trader said prices won’t rise much further.
Risk assets faltered Tuesday after gauges of manufacturing and services signaled lackluster growth for the euro area in June. Global equities had rallied last week after the vote in favor of Brexit spurred central bankers to indicate they could use monetary policy to insulate markets from the fallout. With odds of an interest-rate hike from the Federal Reserve this year effectively wiped out since the referendum, monthly data on U.S. payrolls due July 8 may provide clues as to the direction of the Fed’s next move.
“The factors driving the market today are fears of financial contagion coming out of European banks, the drop in oil prices and currency weakness,” said Michael Sheldon, chief investment officer of Northstar Wealth Partners, which oversees $1.1 billion in West Hartford, Connecticut. “Investors came back after the long weekend and decided that maybe the run-up in prices following Brexit may have been overdone to the upside.”
The MSCI All-Country World Index dropped 1 percent as of 4 p.m. in New York, its first decline in more than a week. The S&P 500, meanwhile, fell 0.7 percent, paring losses that reached 1.1 percent as U.S. trading resumed after the Independence Day holiday. The U.S. benchmark jumped 3.2 percent last week, the biggest weekly increase since Nov. 20.
Tesla Motors Inc. declined 1.2 percent after missing its deliveries forecast because of what the automaker called an “extreme production ramp.” Investors sought refuge in groups considered defensive in nature, with consumer-staples companies and utilities the only S&P 500 groups to increase.
Economic data Tuesday showed U.S. factory orders fell 1 percent in May, exceeding the 0.8 percent drop predicted by economists, while a final reading on durable goods orders showed a 2.3 percent decline. Stocks briefly pared losses after the Federal Bureau of Investigation said it’s recommending that no charges be filed against Hillary Clinton or her aides over the presidential hopeful’s use of private e-mail while secretary of state.
The Stoxx Europe 600 Index lost 1.7 percent Tuesday, extending losses into a second day as all industry groups fell.
Standard Life Plc and Aviva Plc fell at least 3.9 percent after the companies’ investment units suspended trading in their real-estate funds, with investors demanding their money back in the wake of the Brexit vote. Banca Monte dei Paschi di Siena SpA sank another 19 percent to a fresh record low as a person familiar with the matter said Italy is considering injecting fresh capital into the lender.
The MSCI Emerging Markets Index fell 1.4 percent, after climbing 6.2 percent over the past five days in the measure’s biggest rally since March.
In Asia, index futures foreshadowed further declines following a 0.5 percent drop in MSCI’s Asia Pacific gauge on Tuesday. Contracts on the Nikkei 225 Stock Average slid 1.4 percent in Osaka, while futures on indexes in Australia, South Korea and Hong Kong declined at least 0.2 percent in most recent trading.
Yields on Treasury 10-year notes slid seven basis points, or 0.07 percentage point, to a record 1.38 percent. The securities climbed as futures indicated the chance of the Fed raising rates this year has dwindled to 8 percent, down from 50 percent prior to the U.K.’s vote on its EU membership. Thirty-year bond yields dropped to 2.1545 percent, also a record low.
Germany’s 10-year bond rates slipped to negative 0.19 percent, an all-time low, while the yield on the U.K.’s gilts due in a decade slid six basis points to 0.77 percent.
Australia’s 10-year yield dropped to a record-low 1.92 percent after the Reserve Bank of Australia left its benchmark rate on hold. Taiwanese yields declined four basis points to an unprecedented 0.70 percent after the island’s central bank was said to have reduced an overnight interest rate.
Japan sold 10-year debt at a yield of minus 0.24 percent Tuesday, the lowest-ever rate, while rates on its 20-year notes touched a record-low 0.03 percent.
The pound retreated to its lowest price in more than three decades against the dollar, surpassing levels reached immediately after the referendum.
An index published by YouGov Plc and the Centre for Economics and Business Research indicated pessimism over the U.K. economic outlook almost doubled in the week following the June 23 vote. Sterling slid 2 percent to $1.3022 and touched 85.48 pence per euro, the weakest level since October 2013.
The yen climbed 0.8 percent to 101.74 per dollar as the Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, added the same amount. Japan’s currency has gained about 4 percent since the U.K. referendum amid persistent demand for haven assets.
Australia’s dollar retreated 1 percent, after climbing 1.2 percent over the previous two sessions. A national election over the weekend failed to produce a clear winner with officials continuing to tally votes on Tuesday.
The MSCI Emerging Markets Currency Index dropped 0.6 percent after jumping 2 percent in the four days through Friday. The Mexican peso, Colombian peso and South African rand posted the steepest declines among 24 developing-nation currencies.
The yuan weakened 0.1 percent to 6.6874 per dollar in Hong Kong’s offshore market, close to a five-year low reached on Jan. 6. The People’s Bank of China lowered the currency’s daily reference rate by 0.18 percent on Tuesday, bringing the past month’s reductions to 1.2 percent.
Precious metals declined as the dollar snapped five days of losses. Silver tumbled 1.8 percent to $19.97 an ounce, following its biggest two-day advance since 2011. Gold added 0.4 percent to $1,356.1 an ounce. Industrial metals also declined, with copper losing 1.6 percent.
Oil extended its losses, with West Texas Intermediate crude tumbling 4.9 percent from Friday’s closing level to $46.60 a barrel. Brent dropped 4.3 percent to $47.96.
Prices for the commodity won’t rise much further over the next 1 1/2 years as demand slows, according to Vitol Group of Cos., the world’s largest independent oil-trading house. Brent will end 2016 at about $50 a barrel and rise to about $60 by the end of 2017, Vitol Chief Executive Officer Ian Taylor said in an interview with Bloomberg TV. Energy producers account for about 20 percent of the S&P/TSX by market capitalization.
Corn reverted to a bear market less than a month after entering bull territory as rain in the U.S. eased concern over crops and boosted yield potential. Soybean contracts due November saw their steepest ever decline Tuesday.