Published: Thu, October 11, 2018
Economy | By

Dow Falls 430 Points as Bond Yields Surge and China Tensions Grow

Dow Falls 430 Points as Bond Yields Surge and China Tensions Grow

The latest sell-off comes after months of continuous stock market growth stoked by the investors' belief in "American exceptionalism", according to an analyst from investment bank Morgan Stanley. The Russell 2000 index of smaller-company stocks shed 46.45 points, or 2.9 per cent, to 1,575.41.

Earlier on Wednesday, Sears Holdings plunged on reports that the struggling retailer is preparing to file for bankruptcy. Tiffany plunged 10.2 percent to $110.38 and Ralph Lauren fell 8.4 percent to $116.96.

On Friday, federal data showed that the USA jobless rate fell to 3.7 percent in September, it's lowest point since 1969.

The S&P 500 fell nearly 92 points, or just over 3 percent, the biggest daily loss since February this year.

The increase in yields from these bonds - which are parcels of United States government debt - can hurt stocks since they will provide competition for investors' cash. Higher rates can slow economic growth, erode corporate profits and make investors less willing to pay high prices for stocks.

In New Zealand, Bascand said there had a been a fall in business confidence and while this was not based on a recession there were concerns about higher costs for doing business and numbers crunched by his firm showed profit expectations were now 3.3 per cent lower than three months ago. Companies that sell non-essentials to consumers dropped 1.7 percent.

Stock in all 30 blue-chip index companies fell, with Boeing and Caterpillar dropping at least 3.8 per cent.

The December copper contract was down 2.6 cents at US$2.78 a pound. Technology stocks fell especially sharply. Over the years, Sears has closed hundreds of stores and sold several famous brands.

Higher bond rates can weigh on stocks as they provide more competition for yield-hungry investors.

There have recently been several indications that the US housing market has cooled, likely in part due to higher rates on mortgages.


The advance of US Treasury yields to more than seven-year highs, as well as escalating fears over US-China trade relations, has hurt equity investor confidence, with the major US indexes losing more than two per cent overnight.

CVS dipped 0.1 percent to $79.40 and Aetna added 0.5 percent to $204.64.

US crude settled down $1.79 at $73.17 per barrel and Brent fell $1.91 to settle at $83.09.

The November crude contract was down US$1.79 at US$73.17 per barrel and the November natural gas contract was up 1.8 cents at US$3.28 per mmBTU.

The S&P 500 fell 39 points, or 1.4 percent, to 2,840.

The December gold contract was up $1.90 at US$1,193.40 an ounce.

The S&P/NZX 50 index declined 19.16 points, or 0.2 per cent, to 9050.82. The Nasdaq composite fell 152 points, or 2 percent, to 7,585.

The Dow Jones Industrial Average lost 342 points, or 1.3 percent, to 26,090. "Markets are starting to contemplate that this could be a Fed that's over-zealous in terms of interest rate hikes". Brazil's Bovespa lost 2.5 per cent and the Merval in Argentina sank 2.2 per cent.

The euro and sterling rose, underpinned by optimism for a Brexit deal, while the USA dollar lost ground against a basket of currencies even as US yields hovered near multiyear peaks.

The dollar fell to 112.59 Japanese yen from 113.05 yen late Tuesday.

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