(Bloomberg) -- Turmoil returned to global markets as oil plunged and U.S. stocks sank to the lowest levels in 21 months, fueling a rush into haven assets.
Corporate results exacerbated the rout, sending MSCI's gauge of global equities to the brink of a bear market. Russia's ruble and Mexico's peso fell to records, while bets mounted on an end to Hong Kong's dollar peg. Yields on 10-year Treasuries dropped below 2% and the yen jumped to a one-year high.
"There are a lot of things behind" the selloff, said Steven Schwarzman, the chief executive officer of Blackstone Group, in an interview Wednesday with Bloomberg Television's Erik Schatzker from Davos, Switzerland. "You have economic things such as the slowing of the U.S. economy which has been pretty gradual. You've got energy going down so quickly that you can almost get windburn. You've got China as an issue which is probably overdone. So when you put those factors together you have an unattractive brew along with the concern the Federal Reserve will raise rates and slow the economy further."
Oil's slump to a 12-year low is ripping through markets. Just on Wednesday, Royal Dutch Shell said profit may drop at least 42% in the fourth quarter and Saudi Arabia was said to order a halt in selling options used to bet against its currency peg. U.S. bonds now predict the slowest inflation since May 2009. A report on Thursday will probably show U.S. crude stockpiles expanded, exacerbating the global glut.
"What the market is focused on is Chinese hard landing fear, oil prices and the strength in the dollar," Phil Orlando, who helps oversee $360 billion as chief equity-market strategist at Federated Investors in New York, said by phone. "Domestic economic fundamentals don't matter, and that's the point of this correction. That's when we start talking about the need to retest the summer lows and holding at that level to take us to long-term support."
STOCKS
The MSCI All-Country World Index fell 2% at 9:31 a.m. in New York, bringing its drop from a May record to 19%, near the threshold for a bear market. More than $15 trillion has been erased from the value of global equities in the period, according to data compiled by Bloomberg.
The S&P 500 slid 1.1% to the lowest level since April 2014 on a closing basis. Goldman Sachs slipped 0.3% after reporting a 65% drop in fourth-quarter profit as an agreement to settle a U.S. probe into its handling of mortgage-backed securities reduced earnings. IBM lost 7.2% after the company's 2016 earnings forecast missed projections. Microsoft and Apple were among other technology companies down at least 1.3%.
The S&P 500 trades at 15.4 times the forecast earnings of its members, in line with the index's average of the past five years. It's more expensive than developed markets in Europe, where the Stoxx 600 Index trades for 13.8 times estimated earnings.
Investors are keeping close watch on progress in the economy as the markets tumble. Data today showed the cost of living in the U.S. dropped in December, led by a slump in commodities. A separate report showed new-home construction unexpectedly fell last month, indicating the industry lost some momentum entering 2016.
Shell slid 5.5% and BHP Billiton dragged commodity producers lower, falling 6.9% after trimming its full-year iron ore output forecast. Zurich Insurance Group declined 8.7% after forecasting a second straight quarterly loss for its biggest unit.
The cost of living in the U.S. dropped in December, led by a slump in commodities, and new-home construction in the U.S. unexpectedly fell, government reports showed on Wednesday.
EMERGING MARKETS TUMBLE
The MSCI Emerging Markets Index dropped the most in two weeks, sinking 2.7% to the lowest on a closing basis since May 2009. The gauge is down more than 12% this year, the worst start since records began in 1988.
Hong Kong's Hang Seng China Enterprises Index tumbled 4.3% as oil producers plummeted and a drop in the city's dollar spurred concern over capital outflows. The Shanghai Composite Index slipped 1%.
Russia's Micex Index declined 1% and the Bloomberg GCC 200 Index of equities in Gulf markets lost 3.6%. Saudi Arabia's Tadawul All Share Index sank 5% and Dubai shares slid 4.6%. Egypt's benchmark tumbled 5.3%.
Russia's ruble weakened as much as 3.1% to a record 81.0490 against the dollar. The Mexican peso fell to a record 18.4775 per dollar and is down 6.4% this year, making it Latin America's worst performing major currency.
Saudi Arabian banks are under orders to stop selling currency products that allow investors to make cheap bets on a devaluation of the riyal, according to five people with knowledge of the matter.
Hong Kong's dollar traded near its weakest level since 2007 and forwards contracts sank as China's market turmoil fueled speculation the city's 32-year-old currency peg will end.
COMMODITIES
West Texas Intermediate crude lost as much as 4% to $27.32 a barrel before trading 3% lower. Inventories probably increased by 2.75 million barrels last week, according to a Bloomberg survey before a report from the Energy Information Administration Thursday.
Industrial metals dropped on prospects for slower economic growth in China and sustained low oil prices. Copper fell as much as 1.1%.
Gold rose as renewed losses in equities spurred demand for less risky assets, with Citigroup Inc. saying bullion's rationale as a haven was now back in vogue and prices may be supported over the first quarter.
Soybeans in Chicago dropped from the highest in almost four weeks on bets that ample supply in South America will damp prices.
CURRENCIES
The yen strengthened 0.8% to 116.68 per dollar, and touched 115.98, the strongest level since Jan. 16, 2015. Japan's currency appreciated 0.9% to 127.19 per euro. The euro was little changed at $1.0908.
The Australian dollar slid 0.8% to 68.52 U.S. cents, extending this year's decline to 6.%. The kiwi touched the weakest level since Sept. 30.
The Canadian dollar, which has fallen every day this year, slipped to the lowest since 2003 amid speculation the central bank will cut its benchmark interest rate to a level last seen during the 2009 financial crisis.
The Bank of Canada decides on interest rates Wednesday, and private-sector economists are almost evenly divided on whether it will cut the policy rate to 0.25%.
BONDS
Treasuries climbed, pushing 10-year yields to the lowest since October, as investors sought the safety of sovereign debt. The benchmark 10-year note yield fell nine basis points to 1.97%, according to Bloomberg Bond Trader data. That's the biggest drop since Dec. 11.
The difference between yields on 10-year notes and similar- maturity Treasury Inflation Protected Securities, a gauge of expectations for consumer prices, shrank as much as three basis points to 1.37 percentage points, the narrowest since May 2009.
The yield on similar-maturity German bunds sank five basis points to 0.50%, while that on U.K. gilts fell seven basis points to 1.63%.
The cost of insuring corporate debt resumed increases. The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies rose for the 10th time in 11 days, climbing three basis points to 99 basis points. An index of default swaps on junk-rated companies jumped 19 basis points to 397 basis points, the highest in more than a year.
With assistance from Yuko Takeo, Amanda Jordan, David Goodman, Lucy Meakin, Neil Denslow, Alan Soughley and Emma O'Brien.
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