Economy

Dow Jones plunges 1000 points as Wall Street indexes in `correction´

Dow Jones plunges 1000 points as Wall Street indexes in `correction´”

The Dow Jones industrial average dropped more than 1,100 points Monday, erasing all its gains for the year.

USA stocks ended a wild week with a burst of buying, but still recorded their worst week in two years and investors braced for more volatile trading days ahead.

The spike in bond yields and the prospects of of rising inflation are what triggered the market sell-off in the USA last Friday, which then spread worldwide.

In Europe, markets were unnerved Thursday by the Bank of England's indication that it could raise its key interest rate in coming months due to stronger global economic growth.

That means they are in what is known on Wall Street as a "correction", their first in nearly two years.

"There are going to be people that are going to be selling into any kind of strength and then you are going to have some value-conscious investors taking advantage of these multiple 100-point drops", said Alan Lancz, president of Alan B. Lancz & Associates, an investment advisory firm in Toledo, Ohio.

Other European markets also suffered on Friday, with Germany's Dax falling 1.4 percent and France's Cac 40 shedding 1.25 percent. Bears, including short sellers that bet on the market decline, say that the market is over-stretched in the context of rising bond yields as central banks withdraw their easy money policies of recent years. "What we have now is what I call fear of getting caught".

Wall Street lost steam in afternoon trade, after USA 10-year Treasury yields rebounded to 2.836 per cent (their highest levels in four years). Eight stocks fell for every one that rose on the New York Stock Exchange and 490 of the companies in the S&P 500 took a loss. "As that gets more expensive it'll start to put more pressure on the stock market". It retreated $70 cents on Thursday to $68.81.

However, the local currency has risen by 0.4 per cent against the New Zealand dollar. Starbucks (SBUX), JPMorgan Chase (JPM) and Wells Fargo (WFC) also are among the dozens of big employers who have hiked wages in the wake of tax cuts. Average hourly wages grew 2.9 percent from a year ago - the largest increase since 2009.

US crude hit a low of about $26 a barrel in February of that year. Brent crude fell for a sixth straight day too to 0.7 percent to $64.37 per barrel. Heating oil lost 1 cent to $1.92 a gallon.

It also dropped against the British pound (-0.5pc), euro (-0.2pc) and Japanese yen (-1pc).

In Tokyo the Nikkei 225 index rose 1.1 per cent.



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