World stocks erased the year’s gains and German bond yields slid to record lows yesterday as investors fled risky investments for safe-haven assets on the eurozone’s deepening debt woes.
Brent crude slipped below $107 per barrel to its lowest in 2012 as the eurozone crisis raised fears of a global slowdown that could dent oil demand. The euro hovered near a four-month low.
US stocks opened slightly higher, with the impending market debut of Facebook helping to lift battered investor sentiment.
World stocks, as measured by the MSCI index, dropped 0.6% and are now below where they began the year, having relinquished all the first-quarter gains fuelled by the European Central Bank’s injection of more than €1trn. The index was on track for a sixth day of losses.
Riskier assets were all heading for big weekly losses, and German borrowing costs hit record lows on Friday.
Investors were unnerved by a ratings downgrade of 16 Spanish banks by Moody’s Investors Service and an unexpected contraction in US regional factory activity reported on Thursday.
Sentiment has soured to such an extent that an opinion poll showing Greeks are returning to establishment parties which support the country’s bailout had little impact.
If Greeks do vote for the establishment politicians on June 17, Greece’s place in the eurozone would look more secure and the threat of contagion engulfing countries such as Spain would diminish.
On Wall Street, the Dow Jones industrial average was up 5.19 points, or 0.04%, at 12,447.68. The Standard & Poor’s 500 Index was up 1.91 points, or 0.15%, at 1,306.77. The Nasdaq Composite Index was down 2.13 points, or 0.08%, at 2,811.56.
Still, the S&P has fallen 6.7% so far in May, and while volatility is expected to continue, some analysts were forecasting a near-term rebound as valuations become more attractive.
“I think this is a technical bounce and probably some values are beginning to emerge,” said Jim Russell, chief equity strategist for US Bank Wealth Management in Cincinnati. “There’s a little bit of enthusiasm around the Facebook IPO that makes people feel good, but things haven’t changed from yesterday.”
Social networking site Facebook raised about $16bn in one of the biggest initial public offerings in US history.
The FTSEurofirst 300 of leading European shares slid 0.9%, falling for a fifth day.
In the foreign exchange market, the euro tumbled to $1.2642, not far from its lowest of the year, before recovering 0.2% higher at $1.2715.
Brent crude was down 14 cents at $107.35 a barrel.
“We’ve got a bit of a perfect storm at the moment,” Michael McCarthy, a markets strategist at CMC Global Markets in Sydney said.
Meanwhile, German bond yields hit an all-time low.
Benchmark 10-year German bond yields hit a record low of 1.396% and two-year yields also fell to their lowest-ever level at just 0.028%.
Greece has captured the headlines in recent days, but the much larger Spanish economy also poses a threat.
Spain’s banks, saddled with bad loans after a property boom collapsed, may need a bailout that would strain Madrid’s stretched finances and possibly require an international bailout regardless of any contagion threat from Greece.