Financial and commodity markets around the world were in broad upheaval on Thursday, with stocks and commodity prices tumbling on signs that credit markets were seizing up and economic growth was threatened. Investors were in broad flight from risky assets and frantically buying safe-haven government bonds. U.S. 2-year Treasury note yields briefly fell below 4 percent, more than 1.25 percentage points below the U.S. Federal Reserve's target rate for short-term interest rates of 5.25 percent.
NEW YORK (Reuters) - Financial and commodity markets around the world were in broad upheaval on Thursday, with stocks and commodity prices tumbling on signs that credit markets were seizing up and economic growth was threatened.
Investors were in broad flight from risky assets and frantically buying safe-haven government bonds. U.S. 2-year Treasury note yields briefly fell below 4 percent, more than 1.25 percentage points below the U.S. Federal Reserve's target rate for short-term interest rates of 5.25 percent.
Major stock indexes were down at least 2 percent and U.S. benchmarks were all trading more than 10 percent below the 52-week highs reached in mid-July, a level recognized as a "market correction" by professional investors.
The yen was surging as investors unwound bets that had been financed by borrowing the Japanese currency.
In commodity markets, metal and oil prices fell sharply in lockstep with the drops in equities markets.
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COMMENTS:
DON KOWALCHIK, STRATEGIST, A.G. EDWARDS & SONS, ST. LOUIS:
"We went through that 10 percent level on the downside on the Dow which is a typical correction, and the bond market has just exploded from there. If you look at it from a bigger perspective this is just a classic flight to quality. Everything else looks ugly and they run to Treasuries. There is no where to run, no where to hide and everyone is running for the Treasury curve.
The million dollar question is when is the (stock) market down enough? Until we get some clarity in the market -- in other words traders just need a good weekend to get their footing back again. This is a very chaotic market and until some rational behavior gets back into it you are probably going to continue to have the volatility. Eventually you are going to get to a point where buyers are saying 'this has gotten silly cheap'."
ERIC WITTENAUER, ENERGY ANALYST, A.G. EDWARDS, ST. LOUIS,
MISSOURI:
"The downturn (in oil and commodities markets) is due to the broader weakness of the equities market and the potential for any economic slowdown to crimp demand.
"There is talk that some people are being forced to liquidate positions because of margin requirements. That would only accelerate the sell-off we have seen.
SCOTT MEYERS, SENIOR TRADING ANALYST AT PIONEER FUTURES,
NEW YORK:
"Anything that is sensitive to the industrial sector is going to take a hit today, copper being the leading factor. It's getting crushed. It was down almost 3 cents at one point. But the whole metals group in general is taking a hit. Grains are taking a hit. Energies are sinking like a stone. The only sector that is good right now is the interest rate sector and I think that is just a flight to quality and the yen. Every commodity is down as far as I can tell."
That's in reaction to many things. The drop in the Dow is certainly one of them. And certainly margin calls. A general fear right now stemming from the sub-prime thing and now you're getting people shifting money around."
Regarding the Dow's drop: "There will be a capitulation I don't know how soon it's going to be, but from 14,000 down to here you're looking at 1,400 points, so you're there. Your 10 percent correction has been met or thereabouts. Whether we go further than that or where you go from there remains to be seen. But, we're certainly in the throes of a significant mid-summer correction. We haven't given back the whole year, but we're close. At some point it's going to be a buying opportunity, but who knows if we'll make it back to 14,000."
"The market is extremely volatile and you really have to pick your spots, because traditional trading right now is not cutting it. If you're gonna buy you have to hold if it's long term and if it's stocks. And if you're a trader you'd better know what you're doing or you're going to get crushed in a market like this."
WENDELL PERKINS, CHIEF INVESTMENT OFFICER, JOHNSON ASSET
MANAGEMENT, RACINE, WISCONSIN:
"It's been a painful selloff but most of the pain has really been in the financials. The homebuilders have already been trashed and burned. The financials have taken the bulk of the grief and they've all been painted with the same brush regardless of the exposure."
Should the Federal Reserve step in and cut interest rates immediately?
"I think if the Fed came out before the September meeting and announced a cut that would be a terrible signal. I don't even think there will be a September rate cut. Maybe we'll see a rate cut later in the year but I think that would be for the right reason and that would be because we're seeing the economy slowing faster than expected so the Fed steps in and starts adjusting rates accordingly."
JASON GOEPFERT, PRESIDENT OF SENTIMENTRADER.COM, A WEB SITE
IN MINNEAPOLIS FOCUSED ON INVESTOR SENTIMENT:
"As far as the Fed cutting rates, I don't know if that would do more good than harm. They have already admitted the only way they would cut rates if there was a true calamity. So if they did, I think that would scare people even more. When I look at some of the objective measures for selling pressure in the market we are certainly seeing an extreme. One simple measure is the number of stocks on the NYSE hitting new 52-week lows. As of midday, it was over 900 issues. The only other time in the past decade that it has exceeded 900 issues was July 24, 2002."
JIM RITTERBUSCH, PRESIDENT OF RITTERBUSCH & ASSOCIATES,
ENERGY TRADING CONSULTANTS, GALENA, ILLINOIS:
"So many large institutions such as hedge funds have become global and diversified such that when one segment gets into trouble, the problems affect all other parts. The result right now is a mass exodus in equities and commodities," said Jim Ritterbusch, president of Ritterbusch & Associates, energy trading consultants, in Galena, Illinois
"When things like this happen and margin calls are made in one portfolio, these large institutions lighten up their holdings in another portfolio...it becomes a perpetuating cycle," he said.
"In the case of the crude oil market, prices are moving not due to fundamentals but to exogenous factors and the only thing that could turn it around right now is if we get a nasty hurricane."
