Global financial markets have turned gloomy as the countdown to the Federal Reserve’s probable interest-rate increase sparked a selloff among riskier assets, from equities to commodities and emerging currencies.
U.S. stocks headed for their worst week in a month, while shares in developing nations extended the longest slump since June amid speculation higher U.S. rates will trigger outflows. European stocks dropped to a two-month low and oil plunged below $36 a barrel on track for its worst week since March. Industrial metals rose amid plans to cut back output. Treasuries rallied with the yen on haven demand.
“Companies that are leveraged to commodities are breaking lower and then you also have flows of funds into the Treasury market because people are buying Treasuries in anticipation of inflation,” said Dave Lutz, the Annapolis, Maryland-based head of exchange-traded funds trading for JonesTrading Institutional Services. “You’ve got the double whammy in equities. That is going to be the big driver of the day.”
Volatility has returned to global financial markets just days before the Fed is anticipated to raise rates for the first time in more than a decade. With commodity prices at a 16-year low adding to concern that weakness in China’s economy will spread, investors are seeking havens on speculation that the change in central-bank policy will roil markets. Adding to investor anxiety Friday was news that Third Avenue Management took the unusual step of freezing withdrawals from a credit mutual fund.
The Standard & Poor’s 500 Index slumped 1.3% at 11:15 a.m. in New York, headed for a weekly slide of more than 3%. That’s the most since Nov. 13, when signs of slowing growth from China to Europe rekindled concern that weakness could spread to America.
The Chicago Board Options Volatility Index jumped 15% to 22.25, headed for a weekly surge of 50%, the most since August. The VIX trades at its highest level since September.
Traders are pricing in a 74% chance that the Fed will raise rates at its Dec. 16 meeting, with data out of the U.S. Friday showing growth in retail sales and producer prices for November.
DuPont Co. fell with Dow Chemical Co. after the two said they will merge in an all-stock deal, with Dow Chief Executive Officer Andrew Liveris becoming executive chairman. DuPont CEO Ed Breen will be CEO of the new company.
The Stoxx Europe 600 Index tumbled 1.9%, taking its weekly loss to 3.8%. All 19 industry groups declined, led by carmakers. The regional benchmark is heading for its lowest level since October and has sunk 7.5 in December amid a rout in commodity companies and disappointment over the European Central Bank’s last meeting.
Currencies of commodity-exporting nations slumped as oil and iron ore prices tumbled. Australia’s dollar extended its biggest weekly slide since September. South Africa’s rand fell to a record, breaching 16 per dollar for the first time, after President Jacob Zuma unexpectedly fired his finance minister earlier this week. Brazil’s real, Norway’s krone and Mexico’s peso also fell.
A gauge of 20 developing-nation currencies fell 0.7%, sliding 2% in the week, the worst performance since March. The ruble fell 0.6% on Friday. The currency stayed lower after the Bank of Russia kept interest rates on hold. Turkey’s lira dropped 1%.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, was little changed. It is up 0.3% since Dec. 4.