Worries about European sovereign debt turned suddenly into one of the market’s sharpest corrections since the crisis began.
A four per cent drop in Chinese stocks started the downbeat mood, but Wall Street added an exclamation point. Later in the afternoon, the S&P 500 index took its biggest plunge since December 2008, erasing its 2010 gains in a matter of moments. It was down at one point 8.6 per cent, to 1,065.93.
The VIX index of market volatility spiked nearly 40 per cent to 40.71, to highest level in a year – and its sharpest one-day jump since February 2007.
“It’s really shocking,” said Jeff Palma, global equity strategist at UBS. “Stocks fell to minus nine on the year within seconds, that was a pretty shocking move. This is not your normal every day pull back, this is a pretty full-on collapse in risk appetite.”
Images of Greek protesters taking to the streets in opposition to austerity measures matched an accelerating decline in the euro. Meanwhile, the European Central Bank said it would keep its interest rate at 1 per cent, and would not begin buying sovereign debts.
Markets have been rocked over the past few days as the danger to the global economy of unsustainable budget deficits has hit home hard. Riots in Athens have illustrated how the severe austerity measures designed to tackle such deficits have implications not just for economic growth but also for social cohesion.
The dollar and highly-rated government bonds have been pushed sharply higher on haven flows, and commodities corrected to year lows, notably oil trading near $75 a barrel.
In spite of fear emanating from sovereign risk, the beneficiary of the anxiety was the world’s deepest haven market, the 10-year US Treasury. The benchmark fell 15 basis point to 3.38 per cent, having earlier tumbled 28bp. 30-year Treasuries at one point tumbled 30bp lower, to 4.06 per cent, their lowest level since March 2009.
No comments:
Post a Comment