By Corrie Driebusch And Saumya Vaishampayan
Global stocks slumped and European bond yields touched fresh
lows Friday, driven by a new round of jitters over Greek finances,
a crackdown on stock-market borrowing in China and a flurry of
subpar U.S. corporate earnings.
The Dow Jones Industrial Average recently was off 244 points, or
1.4%, at 17861. The Stoxx Europe 600 index was also 1.6% lower,
mirroring declines in other major indexes across the continent.
Yields on 10-year German government bonds, known as bunds, hit a
record low of 0.07%, as investors pulling cash out of stocks sought
safety. Athens's main stock exchange fell almost 2.5%, taking
declines so far this year to more than 11% and over the last 12
months to more than 41%, making it one of the world's
worst-performing indexes.
Strategists said a lack of progress in negotiations between
beleaguered Greece and its international creditors had
substantially increased the risk of Greece defaulting on its debt
and even exiting the euro.
"Obviously Greece is back in focus today, and there's a little
bit of trepidation heading into the weekend," said R.J. Grant,
associate director of equity trading KBW Inc., referring to
concerns about the state of discussions between Greece and its
international creditors.
Germany's DAX fell 2.6% and France's CAC 40 declined 1.6% as
investors continued to worry about Greece's financial situation and
the risk of a debt default.
On Friday, the yield on Greece's 10-year bonds was at 12.49%,
close to a two-year high, while two-year yields were at 26.28%,
close to their highest since being issued. Yields fall as bond
prices rise.
An inverted yield curve, where shorter-term debt yields more
than longer-dated bonds, signals investors foresee a very high risk
of default.
"Athens will have to give in to its creditors demands" if it
wants to avoid default, said Eirini Tsekeridou, a fixed-income
research analyst at Swiss private bank Julius Baer, adding that
only "real gamblers" currently would have any exposure to the
country.
In the U.S., weakness in first-quarter U.S. corporate earnings
also weighed on the market, traders said. The S&P 500 declined
22 points, or 1%, to 2083, and the Nasdaq Composite fell 74 points,
or 1.5%, to 4934.
In earnings news, American Express Co. late Thursday said its
results were hurt by the strong U.S. dollar, which reduced revenue
booked in other countries. Chief Executive Kenneth Chenault
reiterated the company's forecast that 2015 earnings will be flat
to modestly down year over year. Shares fell 4.6%.
Advanced Micro Devices Inc. said its first-quarter loss widened
as revenue slumped. The company said it was exiting its dense
server systems business, effective immediately. Revenue and the
loss excluding items missed expectations, pushing shares down
13%.
Also contributing to market weakness was ongoing concerns about
the timing of an interest-rate increase by the U.S. central bank.
The year-over-year core consumer-price index was better than
expected, according to data released by the Labor Department on
Friday.
"Everyone is so fixated on these inflation numbers because that
is the last shoe to drop, so to speak," said James Liu, Global
Market Strategist at J.P. Morgan Asset Management. The Federal
Reserve, which widely is expected to begin raising short-term rates
later this year, has said inflation and wage growth are among key
data points it uses in deciding when interest rates should
rise.
Investors had to contend with technical problems after
Bloomberg's financial terminals went down globally Friday,
resulting in disruption for traders who rely on the data machines
to trade securities and causing the U.K. to postpone a scheduled
multibillion buyback of government debt. By early afternoon in
Europe, a Bloomberg spokesman said that services to most customers
had been restored. Bloomberg is a competitor of Dow Jones and The
Wall Street Journal on financial news.
In Asia, the Nikkei Stock Average lost 1.2% to 19652.88, on
increased profit-taking and heightened concerns over forthcoming
earnings results.
Exacerbating Friday's selloff in equities and ballooning
risk-aversion were fears surrounding China, with the world's
second-largest economy allowing fund managers to lend stocks for
short selling to increase the supply of shares, the Securities
Association of China said on its website on Friday.
The China Securities Regulatory Commission also said Friday that
it has imposed sanctions to try to control margin finance. Buying
stocks with borrowed money has been a major driver of China's
stock-market run.
The Chinese stock market slumped over 5% in post-close trading,
weighing on sentiment in Europe.
"Monday seems like a long way away at the moment, but there are
fears that we could see a sharp selloff in Asia at the start of the
week, which markets in Europe already appear to be anticipating,"
said Jeremy Batstone-Carr, chief economist at Charles Stanley in
London.
The announcements late Friday by the China Securities Regulatory
Commission, the Shanghai and Shenzhen stock exchanges and two
industry associations raised fears of a selloff in China, where the
main market has now doubled in the past 12 months and the riskiest
index is up 70% this year.
A selloff in China could affect markets around the world,
analysts said. "If China is down 5% it's going to weigh on global
sentiment," said David Welch, head of equity distribution at
brokerage firm Reorient.
Write to Corrie Driebusch at corrie.driebusch@wsj.com and Saumya
Vaishampayan at saumya.vaishampayan@wsj.com
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