LONDON: There was little respite for equity investors on Thursday as the biggest US stock selloff in months rolled through Asia and Europe while American futures pointed to another drop at the New York open. Amid cautious trading, core European bonds gained and Treasuries edged higher.
The worst of the stock declines were in Asia, where China’s Shanghai Composite gauge closed down more than 5%. Taiwan’s technology-heavy TWSE Index plummeted more than 6% in the region’s worst performance.
By comparison, European losses were more contained, with the Stoxx Europe 600 Index and Britain’s FTSE 100 both slipping less than 2%. Italian equities headed for a bear market, however, and LeasePlan Group NV pulled a planned IPO.
US futures extended losses from Wednesday, when the Nasdaq 100 Index plunged more than 4% for its worst day in seven years. Treasuries, which helped trigger the stock selloff when 10-year yields hit the highest since 2011, nudged higher after jumping on Wednesday.
Investors seeking to pinpoint the cause of the current rout in equities have no shortage of culprits: US companies are increasingly fretting the impact of the burgeoning trade war, while the same issue prompted the IMF to dial down global growth expectations. In the tech sector, which was a key driver of the rally that pushed American equities to a record just a month ago, expensive-looking companies have been roiled by a hacking scandal.
Against this backdrop, the Federal Reserve has been trimming its balance sheet and raising interest rates, provoking the ire of an unpredictable President Donald Trump and helping force a repricing of riskier assets. Trump, who has claimed credit for record US stock levels, said after the market closed on Wednesday that the Fed is making a “mistake” and “has gone crazy.”
“The sharp rise in US 10-year yields has caused investors to suddenly reprice the impact of moving from post-crisis low yields to a rising rate environment,” Eleanor Creagh, an Australian market strategist at Saxo Capital Markets in Sydney, said by email. “We have the global growth engines, price of energy rising, price of money rising and quantity of money falling combined with the ongoing trend of de-globalization which has started to impact markets and the cracks are showing.”
Trump also said the stocks decline was “a correction that we’ve been waiting for for a long time,” after being briefed on the market turmoil. Treasury Secretary Steve Mnuchin said he’s not surprised the market is having “somewhat of a correction.”
A gauge of equity volatility in Europe jumped to the highest in almost two months after Wall Street’s “fear gauge,” as the Cboe Volatility Index, or VIX, is known, soared the most since February.
There was little sign of panic in currencies, where the euro gained and dollar weakened versus most of its major counterparts. The Swedish krona was the standout gainer, jumping after inflation data. The lira and rand rallied, but emerging currencies overall edged lower.
Italian bonds remained under pressure as Deputy Premier Matteo Salvini once again said the populist government will stick with its budget plan, though the country successfully sold new debt. Bunds and gilts led advances amid the broader risk-off mood.
Elsewhere, West Texas Intermediate crude fell back below US$73 a barrel amid a broad decline in commodities. Precious metals bucked the trend, and gold jumped. A Bloomberg index of cryptocurrencies dropped as much as 11%.
Here are some key events coming up:
The US Treasury is in the midst of US$230bil worth of debt auctions this week. The IMF and World Bank will hold meetings in Bali beginning Friday, where finance chiefs from around the world will gather. A closely watched gauge of US consumer prices probably remained elevated in September and rose 2.3% from a year earlier, according to forecasts ahead of Thursday’s release. JPMorgan Chase & Co, Citigroup Inc. and Wells Fargo & Co kick off earnings season for US banks on Friday.
These are the main moves in markets:
Futures on the S&P 500 Index fell 0.8% as of 10:44am London time, the lowest in 14 weeks. The Stoxx Europe 600 Index sank 1.7% to the lowest in more than 20 months on the biggest tumble in more than 15 weeks. The UK’s FTSE 100 Index sank 1.8% to the lowest in more than six months on the largest tumble in more than 15 weeks. Germany’s DAX Index decreased 1.4% to the lowest in 20 months. The MSCI Asia Pacific Index sank 3.5%, hitting the lowest in almost 17 months with its ninth consecutive decline and the largest tumble in more than two years. The MSCI Emerging Market Index sank 3.3%, reaching the lowest in 19 months on its sixth straight decline and the biggest tumble in more than two years.
The Bloomberg Dollar Spot Index dipped 0.2% to the lowest in more than a week. The euro gained 0.3% to US$1.1549, the strongest in more than a week. The British pound advanced less than 0.05% to US$1.3196, the strongest in three weeks. The Japanese yen climbed less than 0.05% to 112.24 per dollar, reaching the strongest in more than three weeks on its sixth straight advance.
The yield on 10-year Treasuries fell one basis point to 3.15%, the lowest in more than a week. Germany’s 10-year yield declined five basis points to 0.50%, the lowest in more than a week on the biggest drop in more than a week. Britain’s 10-year yield fell five basis points to 1.677%, the largest drop in more than a week. The spread of Italy’s 10-year bonds over Germany’s rose 12 basis points to 3.0781 percentage points to the biggest premium in more than five years.
West Texas Intermediate crude decreased 1.6% to US$71.97 a barrel, the lowest in more than two weeks. Gold gained 0.6% to US$1,202.59 an ounce, the biggest rise in more than a week. - Bloomberg