In this Aug. 8. 2011 file photo, a Wall Street sign hangs near the New York Stock Exchange, in New York.Jin Lee/The Associated Press
The strongest U.S. dollar in nearly 12 years versus the euro and the spectre of higher U.S. interest rates fueled a selloff in global equities that sent the Standard & Poor's 500 Index to its biggest slide since Jan. 5. Oil and copper declined.
New York's Dow Jones industrials plunged 332.78 points to 17,662.94, its biggest slide since Jan. 5., while the Nasdaq fell 82.64 points to 4,859.80. The S&P 500 index dropped 35.27 points to 2,044.16, slipping below its average price for the past 50 days and erasing its gains in 2015.
Meanwhile, the Toronto Stock Exchange's S&P/TSX composite index closed down 212.73 points, or 1.43 per cent, at 14,641.76. Nine of the 10 main sectors on the index were in the red.
The loonie fell 0.53 of a U.S. cent to 78.86 cents.
"Right now you have to say what is the tone of the market and why is that tone negative, and it has to do with rates," said Ian Nakamoto, director of research at MacDougall MacDougall & MacTier Inc. in Toronto. His firm manages about $5-billion (Canadian). "Anything that feeds into that mentality is going to cause a market reaction."
The Stoxx Europe 600 Index lost 0.9 per cent. The euro weakened 1.4 per cent to $1.0704 and a gauge of 20 emerging-market currencies fell for a ninth day. Yields on 10-year German securities dropped to a record, as the yield difference between 10-year Treasuries and bunds hit the widest since 1989. U.S. crude slid below $49 a barrel while copper dropped the most since January.
Federal Reserve Bank of Dallas President Richard Fisher said the central bank should begin to raise rates as the labour market improves. While policy makers from Sydney to Wellington, Tokyo, Zurich and Frankfurt are cutting rates and buying government bonds to stimulate growth, the Fed stands out in accepting a higher exchange rate as a sign of economic strength. The dollar has rallied this year versus 14 of 16 major counterparts.
"A continuation of dollar strength and euro destruction is certainly raising some concerns," Michael James, a Los Angeles- based managing director of equity trading at Wedbush Securities Inc., said in a phone interview. "How much is a stronger dollar going to impact the bottom lines of U.S. companies? I don't think there was any one specific event or item that caused this. It has more to do with sentiment and emotion than valuations."
Dollar Climbs
Selling in equities was broad based, with all but three of the 24 developed-nation indexes retreating. The MSCI All-Country World Index sank 1.4 per cent, the most in two months, while nine shares fell for every one that gained in the benchmark for U.S. stocks.
The S&P 500 retreated 1.6 per cent last week, the most since January, as data showed the jobless rate reached the central bank's range for what it considers full employment. Policy makers next meet on March 17-18. The index has entered the seventh year of a bull market, pushing valuations near a five- year high. It is lower by less than 0.4 per cent in 2015.
The U.S. dollar rose against all but two of its 16 major peers Tuesday, touching $1.0697 per euro, the strongest since April 2003. Mexico's peso weakened to a record, while the yen touched the lowest in 7 1/2 years. The greenback climbed to parity with Switzerland's franc for the first time since the Swiss National Bank removed a currency cap against the euro in January.
Fed Window
"The dollar's going up so much so fast you wonder what it does to U.S. economic growth down the road, to profitability," Jim Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees $338-billion, said by telephone. "Fisher made comments -- that gives more support around the idea that the Fed window has indeed moved up, which is bringing a more aggressive bid to the dollar and more angst for equity investors."
The benchmark 10-year Treasury yield dropped six basis points, or 0.06 percentage point, to 2.13 per cent. That follows a five basis-point decline Monday. The 10-year German bund yield slid eight basis points to 0.23 per cent.
The lower rates weighed on bank and insurance stocks, sending financial shares in the S&P 500 down 1.9 per cent. JPMorgan Chase & Co. and Goldman Sachs Group Inc. retreated at least 2.2 per cent to pace declines.
All of the 19 industry groups in the Stoxx 600 fell, with five shares declining for every one that advanced, according to data compiled by Bloomberg. Royal Dutch Shell Plc, Total SA and BP Plc dropped more than 2 per cent.
Credit Suisse Group AG added 7.8 per cent after naming Prudential Plc's Tidjane Thiam to replace Brady Dougan as chief executive officer. Prudential fell 3.1 percent.
Emerging Equities
The MSCI Emerging Markets Index slid 1.7 per cent, falling for an eighth day to erase this year's advance. Mexico's peso weakened as much as 1 per cent to 15.6271 per dollar as currencies from South Korea to Turkey and Brazil dropped more than 1 per cent.
Hong Kong's Hang Seng China Enterprise Index slid 1.4 per cent and the Shanghai Composite Index slipped 0.5 per cent. While Chinese producer prices extended a record stretch of declines to 36 months, consumer prices rose faster than economists forecast in February.
Energy producers led Russia's Micex Index down 3.7 per cent to a one-month low while the ruble slipped 3 per cent as trading resumed in Moscow following a holiday on Monday.
Oil's five-day slide in London is the longest run of losses in almost three months. Brent crude settled 3.7 per cent lower at $56.39 a barrel, while West Texas Intermediate declined 3.4 percent to $48.29.
U.S. crude inventories are projected to have increased further from a record high, according to a Bloomberg News survey before an Energy Information Administration report Wednesday. Production of U.S. shale oil will expand at the slowest pace in more than four years in April, the EIA said Monday.
Copper fell 1.9 per cent to settle at $2.624 a pound in New York, after factory-gate deflation deepened in China. Nickel, tin, zinc, lead and aluminum declined in London.