Stocks dropped around the world and Kazakhstan became the latest emerging market to let its currency devalue amid concern that global growth isn’t strong enough to weather higher U.S. interest rates. Oil slid, while gold climbed with government bonds.
The MSCI All Country World Index fell 0.3 percent by 8:14 a.m. in London, heading for its lowest close since January as Chinese shares in Hong Kong lost 3 percent. U.S. equity-index futures declined. The yield on German 10-year notes fell three basis points and gold advanced to a one-month high after minutes of the Federal Reserve’s July meeting showed concern over slow inflation. The tenge plummeted 23 percent after the collapse in oil prices and weak growth in China and Russia forced Kazakh authorities to scrap its trading band.
“As we look around the world, and we look at what commodities are doing and we look at what energy is doing, the fact is demand at best is anemic,” Ted Weisberg, president of Seaport Securities Corp. in New York, told Bloomberg TV’s Shery Ahn. “A bigger problem for not only the Fed, but for central bankers everywhere, is deflation.”
Odds on a September rate increase were reduced Wednesday after Fed officials said while conditions for a hike were approaching, they needed more confidence inflation was climbing. The meeting occurred before China’s yuan devaluation Aug. 11 also prompted a scaling back of bets on higher U.S. rates and a selloff in emerging-market currencies. Oil trading near a six-year low helped push Kazakhstan, Central Asia’s largest crude producer, to allow the tenge to float freely.
Bear Markets
Nine of the 10 industry groups on the global stock gauge dropped. The MSCI Emerging Markets Index fell 1.2 percent, dropping a fifth straight day and taking losses this month beyond 7 percent. The gauge is 24 percent below its September peak.
The Hang Seng Index in Hong Kong and Taiwan’s Taiex Index are both more than 19 percent below April highs, close to passing the 20 percent threshold some investors use to define the beginning of a bear market. The Hang Seng China Enterprises Index fell toward a 10-month low.
The Stoxx Europe 600 Index slipped 0.6 percent, led by oil and gas companies. Standard & Poor’s 500 Index futures retreated 0.2 percent after a 0.8 percent decline in the New York benchmark.
Miners Slide
BHP Billiton Ltd. and Glencore Plc led declines among global mining companies as commodity prices plunged on heightened concern of a sharp slowdown in China. BHP, the world’s biggest miner, closed near a seven-year-low in Sydney, while Glencore slumped to a record low and PetroChina Co. dropped to a six-year low in Hong Kong. Gold producers bucked the trend, notching gains on strength in the price of the metal.
Economic conditions were “approaching that point” where policy tightening could be warranted, Fed officials said. Still, they were silent on whether they should act in September, or wait until they have more evidence that inflation is accelerating, the minutes showed. The chance of an increase next month is now at 36 percent, according to Fed fund futures, down from around 50 percent earlier this month.
The Bloomberg Dollar Spot Index, a gauge of the U.S. currency against 10 major peers, climbed 0.2 percent, erasing earlier declines., The measure slipped 0.3 percent Wednesday after U.S. consumer-prices data Wednesday cast doubt on how quickly inflation will return toward the Fed’s 2 percent target.
The tenge weakened to a record 256.98 per dollar in Almaty. The shift to a free-floating currency comes a day after Kazakhstan let the tenge slide 4.5 percent against the dollar, the most since a devaluation 18 months ago. Vietnam also devalued its currency on Wednesday.
Lira, Yuan
Turkey’s lira plunged 1.4 percent toward a record low as Kazakhstan’s decision focused attention on other under-pressure currencies.
China’s yuan was little changed at 6.3956 after the central bank strengthened its reference rate for the currency by 0.08 percent, the most since June. The International Monetary Fund pushed back until the end of September 2016 the earliest date by which the yuan could be included in its special basket of reserve currencies. The decision was in line with recommendations from staff study two weeks ago.
West Texas Intermediate crude fell a second day, losing 0.7 percent to $40.52 a barrel, near the lowest price this year, following a 4.3 percent tumble on Wednesday that was the steepest one-day retreat since July 6. Brent oil lost 0.7 percent to $46.84, extending its lowest settlement since January.
A surprise 2.62-million barrel increase in U.S. oil inventories fueled the losses, with analysts projecting an 820,000-barrel drop. Energy producers and mining companies led declines in the S&P 500, with both industry groups down at least 1.2 percent. Oil has fallen 30 percent from this year’s peak amid mounting concern over a global glut in the commodity.
Price Pressure
“What won’t be lost on investors is that U.S. oil prices have fallen nearly 16 percent since the July FOMC meeting,” Raiko Shareef, a markets strategist in Wellington at Bank of New Zealand Ltd., said in a client note. “This will prove disinflationary.”
Gold climbed 0.3 percent to $1,137.51, near the highest in a month, as the selloff in raw materials and emerging-market assets boosted demand for haven assets. The precious metal jumped 1.5 percent in the spot market Wednesday. Gold futures for December delivery climbed 1 percent.