US stocks fell below the lows they hit in August and Brent crude oil prices sank below $29 yesterday as further disappointment over economic data reinforced a spiral of investor pessimism about the outlook for the world economy.
Equity indices in Japan and Europe have lost a 10th of their value so far this year, with the US not far behind. Friday’s fall in the benchmark S&P 500 index took it below the lows set in August, when a devaluation of the Chinese currency sparked chaos across global markets.
Ahead of a long weekend in the US, the deepening rout throws into stark relief the decision by the Federal Reserve to raise interest rates in December for the first time in almost a decade. Expectations in the bond market for further rate rises are waning.
Market declines
The latest market declines came after the release of economic figures showing retail sales fell in December, even as tumbling prices for fuel boosted consumer spending power. Indicators of the mood among east coast manufacturers and a gauge of industrial production fell more than economists had forecast.
The 10-year US government note yield at one point fell below the 2 per cent mark for the first time since October. In contrast, riskier debt such as junk bonds took another hammering as the S&P 500 was down 3 per cent at midday in New York, for a loss of 8.8 per cent so far this year.
"It's been a brutal start to the year," said Ben Laidler, a global equity strategist at HSBC. "People are worried about China and a Fed policy mistake, and one is feeding the other."
Oil prices also continued to drop ever lower yesterday, with the price per barrel falling below $30 on both sides of the Atlantic as traders braced for the effect of a return of Iran to markets already overflowing with excess crude.
In currencies, sterling posted an eighth week of declines versus the euro, its longest losing streak since the shared European currency's 1999 debut.
The pound dropped 1.6 per cent to hit a one-year low against the euro of 76.57 pence and a five and a half year-low against the dollar of $1.4326, making it one of the worst performing currencies in 2016.
Traders said the weakness partly reflected concern about a possible exit by Britain from the EU. – Copyright The Financial Times Limited 2016/(Bloomberg)
