Global stocks fell Monday and the euro dropped to its lowest level in two years as concerns about Spain’s financing problems plagued markets anew.
Amid the volatility, investors shifted money to what they saw as havens, sending Treasury interest rates to record lows.
The main impetus for the financial market sell-off seemed to be the fact
that Spain’s borrowing costs hit a record level, on investor concerns
that a deepening recession
and the financial strains on its regions might eventually lead the
government to seek a Greek-style bailout from Europe.
Those worries were hardly eased by new signs that Greece’s bailout may not be working so well.
A chief worry again is that Europe, which has already spent or pledged
about 270 billion euro, or $327 billion, trying to rescue tiny Greece,
would be hard-pressed to find the money to save an economy the size of
Spain’s, the euro zone’s fourth-largest after those of Germany, France
and Italy.
As stocks began falling Monday, market regulators in Spain and Italy stepped in to impose temporary bans on so-called short sales
of stocks — bets against the market that can turn a dip into a plunge.
The regulators’ move may have helped keep the bottom from falling out on
the Madrid and Milan exchanges, but European stocks still had their
worst day in three months. And the euro currency hit a two-year low against the dollar.
Phil Orlando, chief equity market strategist at Federated Investors,
said that the “first domino” fell in Asia, amid concerns about the
fiscal and monetary policy in China and whether that country was done
with interest rate cuts. In the United States, earnings were not
encouraging and gross domestic product was forecast to be lower than the previous number, Mr. Orlando added.
“There were no pockets of good news,” he said.
On Wall Street, the Dow Jones industrial average dropped 101.11 points,
or 0.8 percent, to close at 12,721.46, after trading down nearly 240
points early. The broader Standard & Poor’s 500-stock index fell
12.14 points or 0.9 percent, to 1,350.52, while the Nasdaq composite
index lost 35.15 points, or 1.2 percent to close at 2,890.15.
In Europe, the Euro Stoxx 50 index declined 2.6 percent. The Spanish
IBEX lost 1.1 percent, the DAX in Germany fell 3.2 percent and the CAC
40 in France declined by 2.9 percent.
Joseph Saluzzi, co-head of equity trading at Themis Trading, said it was
hard, amid trading dominated by computers, to pinpoint what had made
Wall Street trim its losses. “The sellers came out early,” he said.
But even if the indexes had closed higher, Mr. Saluzzi said, “I would
not say it is a victory for the bulls. There is certainly a lot of bad
news out there.”
In the bond market, the increased demand for the United States
securities sent the price of the 10-year Treasury note up 6/32, to 102
27/32, while its yield fell to 1.44 percent, from 1.46 percent late
Friday. Earlier on Monday, the 10-year note hit a record low of 1.40
percent. Other maturities, including the 30-year bond, also touched
record lows.
Bruce McCain, the chief investment strategist of Key Private Bank, said
that the markets were sending a “flight to quality” message, and with
“Europe again melting down,” the focus was on safety and preservation.
“In general, most of our conversations with clients are focused on preserving principal,” he said.
As money shifted into Treasury securities, investors sold off euros for dollars. The euro fell to $1.2134 on Monday, from $1.2156 late Friday.
“With the severe fundamental problems in the European markets and
slowing in U.S., China and the rest of the world, this is not the time
to take heroic risks,” Mr. McCain said. “We have seen a waning of the
optimism in the market.”
He noted that corporate earnings in the United States had generally been
beating expectations but that forecasts had been revised lower. “There
is not a whole lot to stem the tide,” he said.
Citing the “rising uncertainty regarding the outcome of the euro area
debt crisis,” Moody’s cut the outlook late Monday for the triple-A
credit of Germany, Luxembourg and the Netherlands to negative from
stable.
Earlier, Italy said its short-selling ban would be imposed for a week on
all types of stocks, while Spain said its ban would last three months.
The Spanish regulating agency said that “the situation of extreme
volatility across the European markets could interfere with their smooth
functioning and the normal course of their activities.”
In short-selling, investors sell borrowed shares at one price and hope
to repay them with shares they subsequently buy at a lower price. The
tactic has been blamed for accelerating market plunges in past crises —
as when American regulators in the September 2008 financial crisis
temporarily banned short sales of financial stocks.
Last August, Spain was one of four euro countries — with Italy, France
and Belgium — that temporarily banned short sales of financial stocks.
Spain’s ban lasted until February, and when it was lifted bank shares
initially fell. But prices stabilized as Spanish banks were at least
temporarily buoyed by a program of cheap three-year loans that the
European Central Bank provided at the time.
