U.S. Stocks Sink Most Since 2011 as Rout Deepens: Markets Wrap
U.S. stocks plunged the most in 6 1/2 years, with the Dow Jones Industrial Average sinking more than 1,100 points, as the equity selloff reached a fever pitch amid rising concern that inflation will force interest rates higher. Treasuries rallied and gold rose on haven demand. Volatility roared back into American equity markets, as the S&P 500 Index sank 4.1 percent to wipe out its January gain and turn lower on the year. The index capped its worst day since the U.S. lost its pristine credit rating, topping the rout that followed China’s shock devaluation of the yuan, the Brexit selloff and jitters heading into the presidential election. Trading volume was almost double the 30-day average. All but two stocks in the broad gauge declined. “This is classic risk off that may not end any time soon,” says Win Thin, head of emerging-market currency strategy at Brown Brothers Harriman. Selling accelerated shortly after 3 p.m. in New York, with the Dow sinking more than 800 points in a matter of 15 minutes only to snap back. The blue-chip index ended lower by 4.6 percent — its steepest drop since August 2011, and is also lower for the year. The Cboe Volatility Index more than doubled to its highest level in 2 1/2 years. Treasuries popped, sending the 10-year yield down more than 10 basis points, and gold future pushed higher. The dollar stabilized while the yen advanced.
U.K. Set to Leave European Union as Slowest-Growing Economy
U.K. economic growth is set to lag all other European Union countries this year and next, even assuming Britain maintains the same trading relationship with bloc after Brexit. Growth will slow to 1.4 percent this year and 1.1 percent in 2019, the European Commission said Wednesday in its winter economic forecasts. Inflation is squeezing incomes and uncertainty is weighing on business investment, the report said. Consumer prices will rise 2.7 percent this year before easing to 2 percent in 2019. The projections for the U.K. are based on the “purely technical assumption of status quo in terms of trading relations” in 2019, the report said. Until recently, that seemed likely to be the case, but Prime Minister Theresa May’s government has since raised several objections to the Commission’s position, making a March deadline for agreeing the terms of a transition phase look increasingly out of reach.
EU Forecasts Stronger Euro-Area Growth as Brexit Risks Remain
The euro-area economy will expand faster than previously anticipated this year and next, the European Commission said, though it offered little comfort to the region’s central bank, saying inflation is expected to remain subdued. It sees expansion of 2.3 percent in 2018, up from 2.1 percent predicted in November and close to the decade-high rate reached in 2017. The 2019 forecast was upgraded to 2 percent, meaning the outlook is broadly in line with the most recent projections from the European Central Bank and International Monetary Fund. The rosier outlook reflects both stronger cyclical momentum in Europe, where labor markets continue to improve and economic sentiment is high, and a stronger-than-expected pick-up in global trade, the commission said in the report published Wednesday. The higher forecasts follow euro-zone growth of 2.4 percent last year. The commission also lifted its forecasts for the EU excluding the U.K., which is negotiating its exit from the bloc. Growth is seen at 2.5 percent and 2.1 percent this year and next. The U.K. will grow by 1.4 percent in 2018, slightly faster than previously projected, but still below the average for the region.
China Foreign Reserves Post 12th Straight Gain as Yuan Rises
China’s foreign-exchange reserves rose for a 12th straight month, as the yuan strengthened and the economic outlook improved. The world’s largest foreign currency stockpile climbed $21.6 billion to $3.16 trillion in January, the People’s Bank of China said Wednesday, compared with the $3.17 trillion estimate in a Bloomberg survey. Reserves have been steadily recovering for a full year since slipping below $3 trillion last January, lifted by a stronger yuan and capital controls that continue to keep money from flowing out. Outflow pressure is also being eased by a solid economy, with growth estimates rising after last year’s acceleration, as well as a weaker dollar. “A lot of exporters will continue to sell their dollar holdings as the yuan surges, which will lead to a continuous increase in foreign reserves and support the Chinese currency,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore. “The yuan may climb to 6.2 per dollar in the near term, leading to more fund inflows. The authorities may relax capital controls gradually as a result.” Reserves will remain stable and two-way movement in the currency will become more noticeable, the State Administration of Foreign Exchange said in a statement with the data. The country’s economic fundamentals remain sound, the currency regulator said.