Oil’s Drop and Economic Fears in Europe Hammer Stocks

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ENLARGE

Stock markets around a creation tumbled as oil quickly fell subsequent $50 a tub and uninformed worries arose about Europe’s economy, stoking fears of deflation.

The euro forsaken to a lowest turn opposite a dollar given 2006, reflecting concerns Greece could be headed for a disorderly exit from a common currency. Adding to vigour on a euro was a turn of temperate acceleration readings. That information lifted expectations a European Central Bank will shortly beef adult a impulse program, that investors interpreted as bearish for a euro.

Major batch indexes fell 3% in France and Germany and 2% in Britain. U.S. holds slumped, with a Dow Jones Industrial Average shifting 331.34 points, or 1.9%, to 17501.65, a largest indicate and commission dump given Oct. 9. The shelter was led by high declines in appetite shares and a obtuse pullback in vast banks.

Investors snapped adult safer resources such as gold, that rose 1.5%, and supervision bonds. The produce on a 10-year U.S. Treasury note slid to 2.038%, a lowest given May 2013. Yields tumble when prices rise.

Turmoil continued in early trade Tuesday in Asia, with Japan heading losses. The Nikkei Stock Average fell 2.5%.

Roiling markets internationally were a horde of mercantile and domestic indicators indicating to debility and instability in Europe, notwithstanding signs of augmenting vitality in a U.S. economy.

In Europe, an suddenly soothing acceleration news from Germany lifted concerns a eurozone faces a potentially extensive duration of undisguised declines in consumer prices, that competence make it harder for a segment to redeem from a extensive mercantile slump.

Low acceleration or descending prices can have certain mercantile effects in a brief term, quite if they are driven by reduce appetite prices that giveaway adult income to spend in other areas. The risk is that people awaiting prices to reason solid or even tumble competence put off purchases or investments, heading to weaker mercantile activity overall.

“The marketplace fears that a oil-price decrease is revelation us something bad that we don’t know about tellurian growth,’’ pronounced

Eric Stein,

co-director of tellurian income during income manager Eaton Vance Management, that has $297.7 billion in assets.

German information upheld ascent expectations European officials will launch vast purchases of supervision bonds.

Shares of several vital European banks forsaken 5% or more, highlighting concerns about a gait of expansion on a Continent and a ability of a eurozone’s financial complement to continue problems tied to Greece.

Investors sojourn generally upbeat on a opinion for shares in a U.S. Even so, traders pronounced drops of 3.1% in


Morgan Stanley
,


Goldman Sachs Group
Inc.

and


J.P. Morgan Chase

Co. on Monday underscore fears that mercantile expansion and increase will defect investors who have enjoyed a five-year-long convene in a SP 500.

“In a end, it is all about inflation,’’ pronounced

Anthony Cronin,

a Treasury-bond merchant during Société Générale SA. “Falling oil prices are creation investors shaken given a rest of a universe is perplexing to equivocate deflation.”

Expectations that central-bank movement could be on a approach this month have kept bond yields in a eurozone pinned tighten to record lows. Germany’s 10-year bond was agreeable only 0.5% Monday, while five-year German holds yielded nearby zero, carrying dipped into disastrous domain Friday.

Adding to Monday’s tumult: German and French officials took a tough line opposite Greece, reigniting fears—largely asleep over a past dual years—of a probable Greek exit from a euro.

That is a destabilizing awaiting for a 19-member banking confederation and a companion banks.

“The No. 1 matter for this selloff is this excitability about Greece,” pronounced

James Swanson,

a portfolio manager who oversees about $2.6 billion in batch and bond investments for MFS Investment Management.

Greeks will opinion in inhabitant elections Jan. 25, and a revolutionary celebration against to purgation measures imposed by a country’s general creditors leads in a polls.

Screens arrangement batch movement inside a Athens sell final week.
ENLARGE

Combined with worries about disappearing mercantile expansion in other tools of a world, a reconstruction of domestic and mercantile concerns in Europe underscored a risks opposed a $13.2 trillion eurozone economy only as a U.S. is display signs of strong recovery.

The annual rate of acceleration in Germany, Europe’s largest economy, was 0.1% in December, subsequent economists’ expectations and a weakest arise given a tallness of a tellurian financial predicament in Oct 2009.

Economists estimated eurozone-wide figures, due for recover Wednesday, will uncover a 0.1% annual dump in consumer prices, that would a initial disastrous reading in some-more than 5 years and distant subsequent a ECB’s aim of only underneath 2%. Last week, Spain’s statistics hospital pronounced consumer prices in a eurozone’s fourth-biggest economy fell 1.1% in Dec from a prior year.

The German cost information upheld ascent expectations in financial markets that a ECB will launch vast purchases of supervision holds as shortly as a subsequent process assembly on Jan. 22 to avert a debilitating slip into deflation.

“Clearly, there’s a high luck of disastrous acceleration for a eurozone,” pronounced ING Bank economist

Carsten Brzeski

in Frankfurt. “It’s augmenting vigour on a ECB to act.”

With their acceleration charge increasingly during risk, ECB officials have fanned out in new weeks, putting markets on notice that they are prepared to squeeze supervision bonds, if needed, to lift a income supply. They have also indicated that a initial entertain is a likeliest time for such a pierce to occur.

ECB President


Mario Draghi

pronounced in a German journal talk final week that, nonetheless a risk of determined cost declines is limited, it can’t be ruled out. “If acceleration stays low for a prolonged time, people competence design prices to tumble even serve and postpone their spending. We are not there yet. But we need to tackle this risk,” he said.

The concerns in Europe come as a cost of oil has depressed by some-more than half given June. Crude futures on a New York Mercantile Exchange traded as low as $49.92 a tub in intraday New York trade Monday, a lowest given Apr 2009, before settling during $50.04, down 5% on a day.

Though a decrease in oil prices has led to reduce gasoline prices and increased a fortunes of typical consumers, it has also tempered increase for a once-booming appetite sector, that has grown in new years to turn a bigger partial of a U.S. economy.

Shares of


Caterpillar
Inc.

forsaken 5.3% following a J.P. Morgan hillside that cited a company’s bearing to energy, construction and rising markets, all of that are seen as negligence down.

—Nicole Friedman and Dan Strumpf contributed to this article.

Write to Brian Blackstone during brian.blackstone@wsj.com, Tommy Stubbington during tommy.stubbington@wsj.com and Min Zeng during min.zeng@wsj.com

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