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World equities at 2-yr low

Analysis

Worries about the global financial sector drove world equities to their lowest in more than two years for a second day on Thursday, while the US dollar struck a one-year high against the euro.

A strong dollar and concerns that the slowing global economy would dampen demand weighed on oil and commodity prices, with US crude oil falling below $102 and gold at 11-month lows. Financial stocks remained under pressure a day after Lehman Brothers posted a $3.93 billion Q3 loss and unveiled a plan to shed weak assets.

Global growth and financial concerns have encouraged US investors to keep money at home, boosting the dollar and depressing riskier assets. “We've got ongoing equity market uncertainty and financial sector uncertainty that feeds the view that the best place to be and to return capital to is the United States,” said Jeremy Stretch, a strategist at Rabobank.

The MSCI main world equity index fell 0.8% to its lowest since July 2006, and the FTSEurofirst 300 index dropped 0.3%. The dollar hit a one-year high against the euro at $1.3923 and against an index of currencies.

Meanwhile, worries about the euro zone economy sent the single currency to a 22-month low of ¥149.09. Euro zone government bond futures fell 13 ticks to 114.81. Emerging sovereign debt spreads were trading around their widest levels in more than three years at 331 basis points over US Treasuries, while benchmark emerging equities fell 2% to the lowest since Nov 2006.

Emerging economies are sensitive to demand in developed markets, and the larger ones have also been a driver of global demand. “The market has completely switched its focus to the global growth slowdown,” said analysts at BNP Paribas in a client note. “The market believes global growth will no longer hold up asset prices.”

A strong dollar helped push oil and commodity prices, which have been used as a barometer for the robustness of the global economy, lower. Oil fell 0.6% to $101.93 a barrel, approaching recent five-month lows. Gold was trading at $738.80 an ounce, a new 11-month low. (Reuters)

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