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Wall Street closed out a strong month with a steep selloff after reemerging worries over Europe's sovereign debt crisis and the bankruptcy of MF Global spooked traders, and Japan's move to boost the yen put strong selling pressure on energy and materials shares.
Despite Monday's weakness, the markets soared in October. The Dow, S&P 500 and Nasdaq were all up more than 9% for the month. Indeed, the blue chips posted their best performance on a percent basis since 2002, and the broader S&P had its best month in twenty years.
The selloff was quite broad on the day, however. Bank of America (BAC) and Alcoa (AA) were the worst-performing Dow components, but all thirty blue chips ended in the red. Volatility spiked 17.7%, while the yields on government debt fell as investors piled into the perceived safe-haven asset. The benchmark 10-year Treasury note yielded 2.143% from 2.243%.
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Japan Intervention Sends Dollar Spiking
Japan on Monday made a significant intervention in the foreign exchange markets for the second time in less than three months as it tries to push down spiking yen exchange rates. The world's third-largest economy has been pressured from the high relative valuation of the yen, which government officials are blaming on speculation. Indeed, the yen hit a post-World War II high against the dollar last week.
Japan relies heavily on exports, and the higher the yen, the more it costs companies in other countries to purchase Japanese goods. The country's economy is already reeling from the effects of the devastating earthquake and tsunami that hit in March and impacted major players like Toyota (TM) and Sony (SNE).
The move made waves throughout global currency markets. The U.S. dollar soared 3.2% against the yen, while the euro slid 2.2% against the greenback. The dollar also jumped 1.1% against a basket of six trading partners.
A stronger dollar, however, is bearish for energy prices that are traded in dollars, shoving many commodities and commodity-related shares into the red. The benchmark U.S. crude oil contract fell 38 cents, or 0.42%, to $92.91 a barrel. Still, oil spiked 17.7% for the month -- the best performance since May 2009.
Wholesale RBOB gasoline slipped 4 cents, or 1.5%, to $2.64 a gallon.
In metals, gold was off $22.00, or 1.3%, to $1,725 a troy ounce.
Additionally, multiple exchanges in which it once had a strong foothold limited MF Global customers to unwinding positions and said it will no longer recognize the company or its divisions as a guarantor. MF Global is a major player in the futures markets, so the news had an outsized affect on futures trading.
Reemerging European Debt Fears
Traders were also paying close attention to Europe, where leaders were still working to solidify a plan to tackle the region's escalating debt crisis. Last week, euro zone policymakers agreed to a wide-ranging plan that includes a 50% writedown on Greek debt held by private bondholders, leveraging of the currency bloc's rescue fund, and recapitalization of European banks. Markets cheered the news, with the Dow soaring 340 points on the day.
However, questions still remained over the euro zone's ability to actually implement the plan before it threatens larger global economies like Italy or Spain.
"After the positive knee-jerk reaction by markets, many now want to see further details of how the increased bailout fund will be financed," Ben Critchley, a trader at London-based IG Index wrote in a note to clients.
Global leaders are set to meet in France at the Group of 20 summit at the end of the week, which is said to be another key milestone for the now two-year-old sovereign debt crisis.
European blue chips tumbled 3.1% to 2,385, the English FTSE 100 fell 2.8% to 5,544 and the German DAX slid 3.2% to 6,141.
In Asia, the Japanese Nikkei 225 fell 0.69% to 8,988 and the Chinese Hang Seng slumped 0.77% to 19,865.