US stocks plunge over 200 points at open, joining Europe retreat as signs of financial stress mounts

Traders work on the floor of the New York Stock Exchange in New York City, USA.
Traders work on the floor of the New York Stock Exchange in New York City, USA.PHOTO: AFP

NEW YORK (REUTERS, BLOOMBERG) - US stocks fell sharply when trading opened on Monday (Feb 8) as technology stocks continued to drag and oil prices fell, amid fears of a global economic slowdown deepening.

The Dow Jones industrial average fell more than 200 points, or over 1.3 per cent, shortly after the open, with Goldman Sachs and Home Depot weighing the most on the index.

The S&P 500 dropped more than 1.5 per cent, as energy and financials led all sectors lower.

The Nasdaq composite shed over 2 per cent as Facebook and Amazon tumbled more than 4 per cent.

Stress in the financial sector triggered by worries over global growth and the impact of negative interest rates drove European share prices to their lowest in 16 months on Monday and sent the cost of insuring bank debt soaring. Concern over the health of the sector, which has prompted comparisons with the early days of the global financial crisis in 2008, pushed borrowing costs in the euro zone's most indebted countries higher and sent investors to the relative safety of ultra-low-risk government debt.

Shares in Deutsche Bank, Commerzbank, Credit Suisse, HSBC and BNP Paribas fell between 3.5 per cent and 6.7 per cent. "Concerns are increasing that in a climate of negative interest rates and prolonged dovish monetary policy, banks' profitability will be squeezed," Jaisal Pastakia, investment manager at Heartwood Investment Management, said. "A high level of unprofitable loans on banks' balance sheets impacts the broader economy by stifling both domestic demand and bank lending growth," he added.

The cost of insuring the subordinated debt of European financial firms rose 12 per cent on Monday to its highest since April 2013, Markit's iTraxx index showed. A similar index for financials' senior debt hit its highest since October 2013. Both indices are up around 40 per cent in the past week.

Oil traded around US$30 a barrel and spot gold rose for a seventh day, the longest winning streak since March.

"Investors can't make up their minds about the global economy, but the risk of recession and deflation is rising," said Francois Savary, the chief investment officer of Prime Partners SA, a Geneva-based investment manager. "It's not enough that valuations have receded quite significantly and earnings haven't been too bad - sentiment is very low and there isn't much visibility right now. That's frightening."

The Standard & Poor's 500 Index sank 3.1 per cent last week as concern about everything from China to oil and interest rates led strategists to lower their year-end projections for the benchmark gauge. In Europe, data on Monday showed the Sentix investor confidence index dropped to the lowest in more than a year in February. Oil failed to hold gains after Saudi Arabia held talks Sunday with Venezuela, which is trying to drum up support for a coordinated oil-output cut to buttress prices. Most Asian markets were closed for the lunar New Year holidays.

The Stoxx Europe 600 Index slid 2.5 per cent to the lowest since 2014. Equity benchmarks in Germany, France and Spain dropped at least 2.5 per cent. Greece's ASE Index sank 7.5 per cent to the lowest since 1990 as banks tumbled.

The MSCI Emerging Markets Index fell 0.7 per cent, extending last week's decline. Benchmark gauges in Russia, Turkey and Poland slid at least 1 per cent while India's Sensex dropped 1.3 per cent.

Markets closed on Monday include those in China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan, Brazil and Argentina.

China reported Sunday its foreign-exchange reserves shrank US$99.5 billion in January to US$3.23 trillion, the smallest level since 2012.

Oil fell for a third day after no supply agreement emerged from Venezuela's tour of crude-producing nations. Saudi Arabian Oil Minister Ali al-Naimi met his Venezuelan counterpart Sunday in Riyadh, the Middle East nation's Petroleum Ministry said in a statement, without mentioning any steps to shore up the market.

West Texas Intermediate crude dropped 2.1 per cent to US$30.25 a barrel and Brent slid 1 pe rcent to US$33.71.

"The Saudis are the main obstacle to a cut," said Ole Hansen, head of commodity strategy at Saxo Bank A/S. "They are buying time while we wait for the solid proof that US production is slowing."

Gold climbed 0.8 per cent to US$1,183.69 an ounce, the highest level in almost four months. Copper slipped 0.3 per cent and zinc gained 1.3 per cent.

The yen gained by at least 0.4 per cent against all 16 major counterparts, advancing to 116.33 per dollar.

The euro slid 0.4 per cent to US$1.1113, after rising 3 per cent last week. The Bloomberg Dollar Spot Index rose for a second day, advancing 0.2 per cent.