Bonds rally, stocks fall as global economy fears mount
By Rodrigo Campos
NEW YORK (Reuters) - Stocks took a pounding on Wednesday, although Wall Street managed to pedal back from its steepest lows, and safe-haven government debt prices rose after U.S. and Chinese inflation data fanned worries about a global slowdown.
A key gauge of Wall Street anxiety hit its highest level since November 2011 as investors rushed to buy protection against further losses, and options activity surged as investors reevaluated their strategies in light of the latest signs that the global economy may be losing its footing.
The S&P 500 fell as much as 3 percent, briefly turning negative for the year, while European equities .FTEU3 finished 3.2 percent lower and marked their biggest one-day slide in almost four years.
Popular trades that have worked for most of the year, including heavy bets on the dollar, more gains in stocks, and on an eventual rise in yields, are unraveling.
A fall in China's inflation rate to a five-year low and a decline in U.S. producer prices for the first time in over a year were worrisome signs to investors already skittish about the path of the global economy and caused them to reassess their views on when the U.S. Federal Reserve might hike interest rates.
"There's concern about an absence of aggregate demand in the world, and that's really what's weakening the market. The big fear out right now is we're not immune from that," said David Joy, chief market strategist at Ameriprise Financial in Boston.
"If you look at the lows of the day, maybe we've put in a little bit of a trading bottom here. But I don't think it makes these concerns go away."
The latest news on the spread of Ebola added to a climate of fear, with Texas officials reporting that another healthcare worker in Dallas tested positive for the deadly virus. Almost 4,500 people have died of the disease, mostly in West Africa. Continued...