Stocks, Commodities Plunge Amid Japan Disaster
A trader works on the floor of the New York Stock Exchange in New York. Photographer: Jin Lee/Bloomberg
March 15 (Bloomberg) -- David Herro, chief investment officer of international equities at Harris Associates LP, talks about the firm's Japanese stock holdings and investment strategy. He speaks with Betty Liu, Dominic Chu and Sheila Dharmarajan on Bloomberg Television's "In the Loop." (Source: Bloomberg)
March 15 (Bloomberg) -- Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., discusses the outlook for Japanese investors to repatriate funds as the nation seeks to recover from its strongest earthquake on record. El-Erian speaks from Newport Beach, California, with Tom Keene and Ken Prewitt on Bloomberg Radio's "Bloomberg Surveillance." (Source: Bloomberg)
March 15 (Bloomberg) -- Curtis Freeze, chairman of Prospect Asset Management Inc., talks about his investment strategy in Japan following the March 11 earthquake and resulting tsunami. Freeze speaks from Tokyo with Scarlet Fu on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
March 15 (Bloomberg) -- Benjamin Collett the head of Japanese equities at Louis Capital Markets (Hong Kong) Ltd., talks about the outlook for Japanese stocks and the yen. He speaks with Francine Lacqua on Bloomberg Television's "On The Move." (Source: Bloomberg)
Stocks in the U.S. and Europe plunged, following Japanese shares lower after the Nikkei 225 (NKY) index posted its biggest two-day drop since 1987, amid concern a nuclear accident outside of Tokyo may cripple the global economy. Commodities slid and government bonds jumped globally.
The MSCI World (MXWO) Index of developed nations fell 2.8 percent at 10:45 a.m. in New York after the Nikkei sank 10.6 percent to the lowest since April 2009. The Standard & Poor’s 500 Index tumbled 1.8 percent. Ten-year Treasury yields slid eight basis points to 3.28 percent. The Swiss franc rose against all 16 major peers except the yen, climbing to a record against the dollar. Oil lost 3.6 percent to $97.59 a barrel.
Credit-default swaps insuring Japanese debt climbed to a record as Tokyo Electric Power Co.’s damaged nuclear power plant was rocked by two explosions today as workers struggled to avert a meltdown that may lead to more radiation leaks in the wake of last week’s earthquake. Equities also retreated as Saudi Arabian troops moved into Bahrain with a regional force in the first cross-border intervention since uprisings swept through parts of the Middle East.
“It’s effectively a retreat from risk assets after a long period of running towards risk,” said Michael Vogelzang, who helps manage $1.7 billion as president and chief investment officer at Boston Advisors in Boston. “The situation in Japan has clearly deteriorated and the economic and financial impact is unknown, and that’s why the market is selling off. We don’t know what the lack of investor confidence in Japan means for the U.S. and the world.”
Biggest Drop
The Nikkei 225’s one-day drop was the biggest since October 2008. South Korea’s Kospi Index (KOSPI) sank 2.4 percent, the most in four months, while Taiwan’s Taiex Index retreated 3.4 percent, the most since February 2010. Credit-default swaps on Japan’s government debt soared 25.8 basis points to a record 122.3, according to CMA, and Tokyo Electric’s jumped 253.5 basis points to 402.5, up from 40.5 on March 11.
The S&P 500 declined for the fourth time in five days, with industrial and technology shares leading declines of at least 1.2 percent in all 10 industry groups.
General Electric Co., which is in talks to sell reactors to India, sank 3.7 percent to lead the Dow Jones Industrial Average down 200 points. The Fukushima plant consists of six reactors based on GE designs, three of which were built by the company.
Insurers Slump
Aflac Inc. and Hartford Financial Services Group Inc. led declines in all 22 insurers in the S&P 500 on concern that operations and investments in Japan will be hobbled. Aflac, which gets most of its revenue in Japan, plunged 8.9 percent and Hartford sank 7.1 percent.
U.S. stock-index futures maintained losses before the open of exchanges even after data showed manufacturing in the New York region accelerated in March at the fastest rate in nine months. The Federal Reserve Bank of New York’s general economic index rose to 17.5 from 15.4 in February. Economists projected an increase to 16.1, based on the median forecast in a Bloomberg News survey.
Labor Department figures showed a 1.4 percent increase in the import-price index, exceeding the 0.9 percent median forecast in a survey. Prices excluding fuel rose 0.3 percent. Food costs over the past 12 months posted the biggest gain since records began in 1977.
European Stocks
The Stoxx Europe 600 Index lost 2.9 percent, its worst drop since June on a closing basis, as the VStoxx Index (V2X), which gauges the cost of protecting against declines in the region’s shares, surged 23 percent. Volkswagen AG and Daimler AG led automakers lower. German utilities RWE AG and E.ON AG fell more than 5 percent each after Chancellor Angela Merkel put plans to extend the life of nuclear plants on hold for three months.
The 30-year Treasury bond yield slid 6 basis points to 4.47 percent, with the 10-year yield declining to the lowest since Dec. 10. The Fed will keep its main interest rate in a range of zero to 0.25 percent today, according to all 101 economists surveyed by Bloomberg. The 10-year German bund yield dropped 11 basis points to 3.12 percent, while the yield on the two-year note sank 13 basis points to 1.51 percent.
Belgium said it postponed a sale of six-year bonds because of market volatility caused by the Japan nuclear crisis.
Credit-default swaps on Bahrain jumped 20 basis points to 334, the highest since July 2009, according to CMA. The Bloomberg GCC 200 Index (BGCC200) of Persian Gulf shares sank 2 percent and Saudi Arabia’s Tadawul All Share Index (SASEIDX) lost 2.4 percent, the biggest slide in almost two weeks.
‘Potential Escalation’
“In addition to the tragic events in Japan, the market had to contend with a potential escalation of the Middle East situation,” Gary Jenkins, head of fixed-income at Evolution Securities Ltd. in London, wrote in a client note. “It would not be a surprise if the significant price moves of the last couple of days did not lead to problems elsewhere in the financial system.”
Emerging-market stocks tumbled the most in eight months, currencies sank and borrowing costs rose.
The MSCI Emerging Markets Index declined 2.5 percent to 1,089.18, heading for the biggest drop on a closing basis since June 29. The extra yield on emerging-market debt over U.S. Treasuries jumped 14 basis points to 2.81 percentage points, the highest level since September, JPMorgan Chase & Co.’s EMBI+ Index showed.
Oil, Copper Fall
Brent crude for April settlement fell 3.8 percent to $109.39 a barrel as Japanese refinery shutdowns reduce the demand for oil. U.S. gasoline futures fell as much as 6.2 percent to $2.7768 a gallon in New York electronic trading.
Copper for delivery in three months fell 1.5 percent to $9,054 a metric ton on the London Metal Exchange, leading a decline in industrial metals. Silver for immediate delivery retreated 4.2 percent to $34.44 an ounce, dropping for the first time in three days. Platinum, palladium and gold also fell.
Derivatives tied to rates for capesize ships used to haul coal and iron ore also fell, on speculation the earthquake will disrupt demand. Forward-freight agreements, traded by brokers and used to hedge or bet on future shipping rates, dropped 6.1 percent to $14,300 a day, according to data from Clarkson Securities Ltd., a broker of the contracts.
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