NEW YORK, Jan 5 ― Stocks were pummeled on the first trading day of the year, sending the Dow Jones Industrial Average down as much as 467 points before recouping some of those losses as a selloff in Chinese equities spread amid anxiety over the outlook for global growth.
While the US blue-chip index had almost halved its decline by the end of Monday trading, the Dow still capped its worst start to a year since 2008. Banks and health care shares led the Standard & Poor’s 500 Index to a 1.5 per cent slump, and a gauge of global equities posted its worst inaugural session in at least three decades. Emerging-market shares slid the most since August as evidence of slowing manufacturing in China triggered a selloff that halted trading in Shanghai. As riskier assets were shunned, bonds found favor and the yen rallied. Oil ended lower after rising earlier in the session.
“I think the selloff did bring in some bargain hunters at the end of the day,” said Jim McDonald, chief investment strategist at Chicago-based Northern Trust Corp, which oversees US$946 billion (RM4.1 trillion). “That is somewhat a reflection that the worries in the market were predominately based overseas. If you look at the way the market traded, it didn’t scream fear.”
Investors returning to financial markets after the New Year holiday were greeted with a worldwide selloff sparked by the weak factory data in China, while a report showing the fastest contraction in US manufacturing in six years added to anxiety that slowing growth in Asia’s largest economy may be spreading. A flareup in tensions between Saudi Arabia and Iran increased geopolitical unease, initially igniting gains in crude oil.
The MSCI All-Country World Index fell 2.1 per cent by 5pm in New York, topping its slide of 1.5 per cent at the start of 2001. The S&P 500 dropped to 2,012.66, after the gauge ended 2015 down 0.7 per cent.
The S&P 500’s decline, its worst since December 18, constituted its sixth-worst start to a year in data compiled by Bloomberg going back to 1927. The biggest first-day rout was in 1932 when the index sank 6.9 per cent, followed by a 2.8 per cent slide during the dot-com demise in 2001. In those two instances, the index averaged a full-year loss of 14 per cent.
S&P Dow Jones Indices data indicate that the first day of trading has little predictive power for the rest of the year. The index ends the year in the same direction it takes on the opening day 50.6 per cent of the time, the data show. The first month of the year has proved more telling ― the gauge’s return in January determines its direction for the year 72.4 per cent of the time.
Focus will turn toward economic reports this week, including data on factory activity, the monthly US jobs report and minutes from the Federal Reserve’s meeting that ended with the first rate increase since 2006. Data today showed manufacturing in the US contracted in December at the fastest pace since 2009 as factories, hobbled by sluggish global growth, cut staff at the end of 2015.
Gauges of volatility in the US and Europe spiked, with the Chicago Board Options Volatility Index climbing 14 per cent. Its counterpart for the Europe Stoxx 50 jumped 22 per cent.
The Stoxx Europe 600 Index fell 2.5 per cent, capping the worst start of the year ever as almost 580 of its companies fell. Germany’s DAX Index, among the best performers in 2015, dropped 4.3 per cent, the biggest slide for the export-driven gauge since the China-led rout in August.
In Asia, Japan’s Topix index slid 2.4 per cent to drive a 2.4 per cent slump in the MSCI Asia Pacific Index as China’s CSI 300 Index slid 7 per cent, spurring a trading halt.
New Zealand’s S&P/NZX 50 Index, the first major stock gauge to get going each day, slid 1.4 per cent at its open in Wellington yesterday, its first day of trading for the year. Futures on stock gauges in Tokyo, Sydney, Seoul and Hong Kong declined at least 0.4 per cent in most recent trade.
The MSCI Emerging Markets Index slid 3.3 per cent, the most since August 24, which marked the nadir of a selloff sparked by China’s shock devaluation of the yuan.
China’s CSI 300 Index of large-capitalization companies listed in Shanghai and Shenzhen fell 7 per cent, triggering a circuit-breaker that suspended trading for the rest of the day. Hong Kong’s Hang Seng China Enterprises Index, which tracks mainland shares traded in the city, slid 3.6 per cent as benchmark gauges in South Korea, Taiwan, Malaysia, South Africa and Poland lost more than 2 per cent.
The Caixin factory index for China came in at 48.2 in December, missing the median analyst estimate for a reading of 48.9. The private PMI reading came after the nation’s first official economic report of 2016, released January 1, signalled manufacturing weakened for a fifth month, the longest such streak since 2009.
High-yielding currencies were sold off, with the Australian and New Zealand dollars leading losses amid their close trading connections with China.
The yen and dollar climbed as traders sought out refuge investments. The yen touched 118.70 per dollar, the strongest level since October 15 and the Swiss franc was also among the biggest gainers. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, climbed 0.3 per cent.
The Argentine peso and Brazilian real drove emerging-market currency declines.
Government bonds across developed economies rallied after the plunge in Chinese shares drove demand for the relative safety of sovereign debt, pushing Treasury 10-year yields down by the most since December 17. The increased tensions between Iran and Saudi Arabia also fueled the haven demand.
Benchmark German 10-year bonds opened higher, rising with European peers from Austria to France. The move echoed the reaction to August’s rout in Chinese shares that helped persuade the Fed to refrain from raising rates in September.
Yields on benchmark US 10-year notes declined three basis points, or 0.03 per centage point, to 2.24 per cent. Germany’s bund yields fell six basis points from the December 30 close to 0.57 per cent.
West Texas Intermediate crude dropped 0.8 per cent to $36.76 a barrel, erasing earlier gains of almost 2 per cent as more evidence of a global glut in the commodity outweighed the increase in tensions between Saudi Arabia and Iran. Prices last week capped the biggest two-year loss on record amid speculation a global glut will be prolonged as US crude stockpiles expanded and the Organization of Petroleum Exporting Countries abandoned output limits.
Copper wiped out two weeks of gains as metals and mining shares slumped after data showed manufacturing contracted in China and the US, the world’s biggest users of the metal.
Gold had the biggest gain in two weeks on haven demand. Futures for February delivery rose 1.4 per cent to settle at US$1,075.20 an ounce in New York, the biggest advance since December 21. The precious metal sank 10 per cent last year, capping the longest slump since 1998. ― Bloomberg