By Tommy Stubbington
Worries about slowing global growth whacked mining stocks in
Europe on Wednesday and sent investors into the safety of
government bonds, with a fresh slide in copper adding to
jitters.
The nerves persisted despite an opinion from a top European
court that appeared to clear the way to a large-scale program of
bond purchases by the European Central Bank, a ruling that
supported broader stock indexes and pushed the euro to a nine-year
low.
The resources stock slump came after the World Bank on Tuesday
cut its outlook for global growth in 2015 and 2016, fanning
concerns that falling energy and metals prices are a symptom of
weakening demand.
Copper has now joined the rout, with prices plunging to their
lowest level in more than five years, while oil prices continued to
fall, with Brent crude down nearly 2% at $46.90 a barrel.
Mining stocks on the Stoxx Europe 600 index plummeted 5%, and
oil and gas companies were down 1.5%.
Antofagasta PLC, a Chilean copper miner listed in London,
tumbled 8%. Mining giants Glencore PLC, Anglo American PLC and BHP
Billiton PLC all fell sharply. London's resource-heavy FTSE 100
fell 1.3%.
While cheaper energy and industrial metals are good news for
consumers in the U.S. and particularly Europe, they also raise
concerns about the health of the global economy, noted Julian
Chillingworth, chief investment officer at Rathbones, which manages
GBP26.3 billion ($39.9 billion) of assets.
"This is also about demand. Weaker growth in China and slow
growth in the eurozone are part of what's hurting commodities," he
said.
Still, the shakeout stood in contrast to broader equity markets
in Europe, which tumbled at the open but clawed back much of the
lost ground after the European Court of Justice ruling.
An adviser to the ECJ said the ECB can buy large quantities of
eurozone government debt to stabilize the currency area's economy,
delivering a key legal endorsement for the central bank as it
prepares another round of stimulus measures to fight deflation.
The Stoxx Europe 600 was 0.4% lower midmorning, having fallen
1.5% in early trading.
The ruling presents "no roadblocks" to a broader bond-buying
program from the ECB, said Rabobank strategist Lyn
Graham-Taylor.
Many investors think a so-called quantitative easing program
will be announced later in January, an expectation that has buoyed
up eurozone assets in recent weeks and sent the euro to a nine-year
low on Wednesday.
Stocks in Italy and Spain, which are highly sensitive to QE
expectations, led the bounce back in Europe. The euro, which has
weakened in recent weeks on easing expectations, fell to $1.1725
against the dollar. Bonds in Italy and Spain also gained
slightly.
Still, demand for high-grade government bonds remained strong,
briefly pushing the yield on the 10-year U.S. Treasury bond to
1.85%, its lowest since May 2013, before rebounding to 1.89%. The
equivalent German bond yield fell to 0.45%, close to its record
low. Yields fall when prices rise.
The yen, another traditional safe harbor in times of stress,
climbed to a one -month high. The dollar fell 0.8% against the
Japanese currency to Yen116.54 before picking up to Yen117.06.
U.S. stock futures pointed to a 0.2% decline for the S&P 500
at Wednesday's open. Changes in futures aren't necessarily
reflected in market moves after the opening bell.
Write to Tommy Stubbington at tommy.stubbington@wsj.com
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