US markets had their worst day of the year Wednesday, with wide-spread selling on the back of negative economic news. Mixed quarterly earnings in the US coupled with a curb on Chinese lending till the end of January rattled investors, while a slide in commodity prices added to losses in the resource sector.
On the plus side for the US economy, the curb in Chinese lending gave strength to the US dollar. At the close in the US the market, one Australian dollar was buying 90.87c, down 1.5c in 24 hours.
In other economic news, there was mixed news on home building with permits rising more than expected, while actual starts dipped a little ahead of expectations in December.
Meanwhile, the Producer Price Index, a measure of wholesale inflation rose 0.2% against expectations it would hold steady.
The Dow Jones fell 122.28 points, or 1.14%, to 10,603.15, the S&P 500 dropped 12.19 points, or 1.06%, to 1,138.04 and the tech-heavy NASDAQ sank 29.15 points, or 1.26%, to 2,291.25.
In banking stocks, Bank of America posted a larger loss than expected. However its shares rose 1%. Citigroup lost 2.3% to be the worst performer of the major banks.
Goldman Sachs added 0.6%.
Kraft shares lost 2.1% as the company’s bid for UK confectionary giant Cadbury was finally accepted. This came as Warren Buffet suggested Kraft had overpaid for the UK company.
Tech giant IBM beat earnings expectations with quarterly sales of US$27 billion, however investors dumped the stock on a weaker outlook for the company. The share price slumped 2.9%.
Microsoft and HP closed down 1.6% and 1% respectively, while Apple gave up 1.5%.
Retailers also lost ground with Wal-Mart 0.3% below the line and a raft of other well known brands including Macy’s and Costco losing between 1% and 1.5%.
NYMEX light crude oil for February delivery fell $1.87 to settle at $77.62 a barrel.
Exxon Mobil retreated 1.7%, while ConocoPhilips and Chevron slumped 1.2% and 1.9% respectively.
COMEX gold for February delivery fell US$27.40 to settle at $1,112.60 an ounce.
European Markets
European stocks retreated sharply Wednesday as markets across the continent were hit by a combination of falling commodity prices, Chinese lending restrictions and disappointing quarterly earnings out of the US. Meanwhile Greek stocks continued to slump on concerns the country would not be able to meet its debt repayments.
The UK benchmark FTSE 100 retreated 92.34, or 1.67% to 5,420.80 while the German DAX slumped 124.95, or 2.09% to 5,851.53. The French CAC40 lost 80.72, or 2.01% to 3,928.95.
The banks suffered as their US peers underwhelmed investors with quarterly earnings.
In the UK, Barclays slumped 3.6%, while HSBC and the Royal Bank of Scotland retreated 2.1% and 0.9% respectively.
On the continent, BNP Paribas lost 2.8% and Societe Generale gave up 2.3%. Deutsche Bank was 2.1% cheaper.
Greek banks continue to dominate headlines in European press for all the wrong reasons. The National Bank of Greece lost 5.5% on country’s poor economic prospects.
French carmaker Renault lost 3.9% after being downgraded by UBS. Rival Peugeot retreated 1.8%, while German carmakers including Daimler Chrysler, down 3%, also lost ground.
Base metal prices on the London Metal Exchange slumped heavily on Wednesday sending mining stocks lower.
Aussie peers, BHP Billiton and Rio Tinto sank 3.6% and 4.3% respectively. Vedanta Resources lost 4.2% and Chilean based copper miner Antofagasta slumped 6%.
There was some respite from the selling with Rentokil Initial climbing 2.8%.
Dutch chip equipment maker ASML added 3.1% after posting better than expected earnings.
Japanese Markets
The Nikkei closed down for the third straight session Wednesday. The decision in China to curb lending coupled with broker downgrades ahead of reporting season saw many investors choose to stay on the sidelines.
The Nikkei 225 closed down 27.38 to 0.25% 10,737.52.
The broking houses were hardest hit by the decision from investment banks, including Credit Suisse, to downgrade their stocks.
Nomura Holdings and rivals Daiwa Securities and Matsui Securities lost 3.8%, 2.4% and 3.7% respectively.
Japan’s largest bank, Mitsubishi UFJ Financial Group slipped 0.8%. Sumitomo Mitsui Financial Group was 1.3% below the line.
Konica Minolta lost 2.6% after its stocks too were downgraded, this time by Barclays, which cut them to ‘underweight’.
Meanwhile, the shippers were down as China cut lending. Mitsui OSK lost 2.1%. Kawasaki Kisen lost 4%.
Healthcare stocks rallied in unison with their US peers, as the prospect of the health care bill in that country failing to get passed.
Takeda Pharmaceuticals, Asia’s largest drugmaker, climbed 1.7%.
Hong Kong Markets
Hong Kong stocks dropped to near one-month lows amid speculation China will withdraw stimulus measures. Financials led the slide after lending restrictions were placed on some banks.
The Hang Seng fell 391.81, or 1.81% to 21,286.17.
Financials struggled after the government regulator requested lending limitations. Bank of China dropped 3.4%, while China Construction Bank and Industrial and Commercial Bank of China lost 3.1% and 2.6%.
CITIC Bank slumped 4.1%.
Ping An Insurance weakened 2.3% as the government said it wants to limit price wars in the industry.
China State Construction Engineering Corp slid 2.4% on concerns that a credit tightening may reduce its business and end result. The building company was also the most actively traded stock.
Developer Cheung Kong Holdings shed 1.4%, while Henderson Land Development and Glorious Property Holdings fell 2.5% and 2.4%.
China Coal Energy and China Shenua Energy lost 2.8% and 2.9% on reports the coal industry faces oversupply over the next two years.
