China’s devaluation of the yuan triggered the currency’s biggest one-day drop since 1994, sparking a chain reaction across global markets as it weighed on competitors and raised concern that growth in the world’s second-largest economy is headed for a deeper slowdown.
The decision by the People’s Bank of China to cut its reference rate by 1.9 percent dragged down Asian currencies and pulled down stocks of exporters in the U.S. and Europe. Emerging-market equities tumbled to the brink of a bear market and industrial metals sold off, while demand for the havens of bonds and gold surged.
“It’s disappointing after one day of recovery to see oil roll back over, rates come back down and the market weaker,” Tom Wright, the New York-based director of equities at JMP Securities, said in a phone interview. “We spend a lot of time obsessing over Greece or Puerto Rico but China is a much bigger economy and a much bigger problem to the global economy and devaluing the currency is shaking people up.”
The Standard & Poor’s 500 Index slipped 0.6 percent at 10:33 a.m. in New York, after its best rally in three months. Oil plunged 3.7 percent, sending the Bloomberg Commodity Index down 1.8 percent. The yield on 10-year Treasury notes sank eight basis points, while a gauge of Asian currencies against the dollar tumbled 1.6 percent.
A rally in commodities from oil to copper helped the S&P 500 jump 1.3 percent Monday. Those trades reversed Tuesday, as companies that rely on sales to China retreated and commodities producers tumbled on concern demand will slow from China, the world’s biggest consumer of energy and metals.
Carmakers and luxury-goods producers slipped. General Motors Co. and Ford Motor Co. lost more than 1.5 percent. Caterpillar Inc., Tiffany & Co. and Apple Inc. each dropped at least 1.4 percent. Google Inc. bucked the trend, advancing 5.4 percent after saying it will reorganize into a new holding company, Alphabet Inc.
Energy shares led losses in the S&P 500 erasing two-thirds of a rally from Monday. Oil dropped after the biggest advance in a month in New York as a recovery in Iranian production pushed OPEC supplies to the highest in more than three years. West Texas Intermediate fell 3.3 percent to $43.51 a barrel and Brent crude slid 2.2 percent to $49.31.
Freeport-McMoRan Inc. sank 13 percent for the biggest drop in the S&P 500 as copper, nickel and tin dropped at least 2.5 percent in London. Aluminum slid 2 percent after Goldman Sachs Group Inc. cut its price forecasts for the metal.
Gold for immediate delivery erased an earlier decline, gaining 0.6 percent to $1,111.22 an ounce, while silver and platinum also advanced amid demand for havens.
The unexpected move by China’s policy makers bolstered speculation the Federal Reserve may have to delay raising interest rates, as the threat of a slowdown in China could harm global growth, while lower commodity prices damp inflation.