Stocks fell around the globe, erasing the 2010 gain for the MSCI World Index, and the euro weakened to a 12-month low on concerns that Greece’s bailout may have to be extended to other indebted nations.
The MSCI gauge of equities in 23 developed nations declined 1.2 per cent at 10.40 am in New York, leaving it down 1 per cent for the year.
The Standard & Poor’s 500 Index fell 0.7 per cent to the lowest since March after sliding as much as 1.3 per cent. Spain’s IBEX 35 Index slumped 2.3 per cent to the lowest since July. The Euro lost more than 1 per cent against the dollar for a second day. Copper slid below $7,000 a tonne, wile nickel tumbled 11 per cent and oil dipped below $80 a barrel. The 10- year treasury yield decreased 4 basis points to 3.55 per cent.
European Central Bank council member Axel Weber said today there was a threat of “grave contagion effects” as Moody’s Investors Service warned it may cut Portugal’s debt rating. Three people were killed in an Athens fire set during protests against Greek austerity measures. More than $1.1 trillion was wiped from global stocks yesterday amid concern that rescues similar to Greece’s ¤110 billion ($143 billion) package would be needed in Spain and Portugal.
“The reason we have to worry is, let’s face it, this is a global environment,” said Jason Pride, Director of Investment Strategy at Glenmede in Philadelphia, which manages $18 billion.
“The primary concern is the contagion risk associated with Greece and some of the other problematic nations in Europe and the follow-on effects on long-term economic growth. We may be in for more of a rough and volatile period.”
The decline in US futures indicated the S&P 500 may extend yesterday’s 2.4 per cent rout, its biggest since February, as concern about contagion from Europe’s debt crisis overshadows growing evidence the US economic recovery is gaining momentum.
Traders are betting a Greece’s European Union-led bailout would fail to ease concern other indebted countries would need rescue packages. Investors demanded an extra 122 basis points to hold Spanish 10-year bonds instead of German bunds today, 6 basis points short of the most since the Euro’s inception and up from 116 basis points yesterday. The difference for Portuguese bonds jumped to 273 basis points from 252 basis points.
Portugal may have its credit rating cut by Moody’s Investors Service as the country struggles to reduce its budget deficit and revive economic growth, the latest sign that contagion from the Greek crisis is spreading.
