Weak China data prompts retreat in stocks and copper as euro take a dip
The European Central Bank warned about the effect of bondholder write-downs, and investor unease on the effectiveness of current measures to prevent the spread of the eurozone debt crisis could be seen in the rise in yields on Italian bonds.
Major stock markets had recently jumped sharply on hopes the debt crisis was close to being resolved.
Prices of US Treasury debt rose as investors sought relative safety.
On Wall Street, shares of JPMorgan Chase slumped 5.5 percent to 22.87€ after the bank reported a drop in quarterly earnings.
It was the first major US bank to post results this season.
US shares fell from three-week highs after China reported its trade surplus narrowed for a second straight month in September. Both imports and exports were lower than expected.
The data reflected global economic weakness, which along with the euro zone debt crisis, drove equities and commodities to post heavy losses in the third quarter.
An index of US bank shares slid 4.3%.
“JPMorgan is a good indicator of what is happening in the banking industry and a little bit of an insight into where consumer banking is headed,” said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.
In afternoon trading in New York, the Dow Jones industrial average dropped 51.50 points, or 0.45%, to 11,467.35. The S&P 500 dropped 6.80 points, or 0.56%, to 1,200.45. The Nasdaq Composite gained 4.05 points, or 0.16%, to 2,608.78.
A spike in shares of chipmakers kept the tech-heavy Nasdaq higher.
The S&P 500 has run up more than 10% from a 2011 low hit on October 4 and had notched its largest seven-day rally since March 2009 on growing optimism European leaders were making progress in tackling the region’s debt problems.
World stocks as measured by MSCI were down 0.5% after six days of gains.
The soft data from China also pressured copper prices. The industrial metal, often taken as a proxy for economic growth expectations, fell 2.5%. China is the world’s largest copper consumer, accounting for nearly 40% of global demand.
The euro pared losses but was still trading lower against the US dollar, pulling back from a one-month high, after the ECB warned about the impact on the currency and the region’s banks of involving bondholders in euro zone bailouts.
Slovakia’s parliament backed a plan to bolster the euro zone’s rescue fund after political parties agreed to hold an early election, concluding the ratification process in all euro zone countries.
But even with a revamped rescue fund, European banks are still vulnerable to a Greek default and to sovereign downgrades. That increases the urgency for them to raise more capital to remain financially sound, analysts said.
“After such a strong rally this week based on nothing but hope, people realise that things are not going to come as easily as they had hoped,” said Kathy Lien, director of currency research at GFT in New York.
The single currency hit a New York session low of 1€ according to Reuters data. It last traded at 1€ down 0.2% on the day. The euro on Wednesday touched its highest versus the greenback since September 16.
Italy sold 6.2 billion euros of debt, split across four bonds. But yields remained under pressure, and the European Central Bank stepped into the secondary market after the auction, buying Italian debt to cap rising yields.
The Italian 10-year BTP yield was up to 5.829% from 5.738% late on Wednesday.
The benchmark 10-year US Treasury note was up 13/32 point, with the yield at 2.1656%.
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