Rolling world stock sell-off runs to $4
trillion
Send a link to a friend
[February 06, 2018]
By Marc Jones
LONDON (Reuters) - World stock markets
nosedived for a fourth day running on Tuesday, having seen $4 trillion
wiped off from what just eight days ago had been record high values.
Europe's main bourses were down around 2 percent, leaving investors with
little option but to seek traditional refuges such as gold and one of
the initial triggers for the selloff - benchmark government bonds.
Wall Street futures offered a chink of light as they turned higher in
Europe but commodities remained gloomy, with oil and industrial metals
all tumbling backwards as the year's upbeat start for markets soured
rapidly.
"Playtime is officially over, kids," analysts at Rabobank said. "Rising
volatility painfully reminds some investors that one-way bets don't
exist."
The stock selloff had been viewed by some as a healthy correction after
a rapid rise over the last year but, as it snowballed through Asia and
Europe, nerves were starting to fray.
Wall Street's Dow Jones and S&P 500 benchmarks had slumped 4.6 percent
and 4.1 percent on Monday, their biggest drops since August 2011. It was
also the Dow's biggest fall on a pure points basis of all-time and put
it in the red for 2018.
Europe's drop sent the region's STOXX 600 to its lowest level in six
months. There was intense trading activity, with almost 90 percent of
the average daily volume traded on Germany's DAX and Europe's STOXX 50
by 1030 GMT, just 2-1/2 hours into the session.
The euro STOXX volatility index, Europe's main market 'fear-gauge', saw
its biggest spike since the September 11 attacks on the United States in
2001.
"Price action is clearly driven by technical factors, tied to a brutal
awakening of stock volatility," said Alessandro Balsotti, head of asset
management at JCI Capital. "We are undoubtedly in uncharted waters."
GOLDILOCKS VS THE BEARS
"Since last autumn, investors had been betting on the 'Goldilocks'
economy - solid economic expansion, improving corporate earnings and
stable inflation. But the tide seems to have changed," said Norihiro
Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley
Securities.
MSCI's broadest index of Asia-Pacific shares outside Japan slid 3.4
percent. Taiwan's main index lost 5.0 percent, its biggest slump since
2011, and Hong Kong's Hang Seng Index dropped 4.2 percent.
Japan's Nikkei dived 4.7 percent, its worst fall since November 2016, to
four-month lows.
The original trigger for the sell-off was a sharp rise in U.S. bond
yields late last week after data showed U.S. wages increasing at the
fastest pace since 2009. That raised the alarm about higher inflation
and, with it, potentially higher interest rates.
That could be painful for markets that have been propped up by central
banks' stimulus for many years.
The 10-year U.S. Treasuries yield rose to as high as 2.885 percent on
Monday, its highest in four years.
[to top of second column]
|
A share trader checks his screens at the stock exchangee in
Frankfurt, Germany, November 20, 2017. REUTERS/Kai Pfaffenbach
But a massive fall in share prices prompted an about-turn, which
sent it as far back as 2.662 percent. German Bunds, Europe's
equivalent benchmark, then fell 6 basis points in morning trading,
their biggest drop in over two months.
"Ten-year treasuries at four-year highs - does this herald the start
of a bond bear market? Or are we simply returning to a more ‘normal’
cycle of higher yields and higher interest rates?" said Graham
Bishop, Investment Director at Heartwood Investment Management.
REDUCING RISK
The CBOE Volatility index, the closely followed measure of expected
near-term U.S. stock market volatility, jumped 20 points to 37, its
highest level since August 2015.
That left some popular exchange-traded products that investors use
to benefit from calm market conditions facing potential liquidation.
Keen to avoid further risk, investors were closing their positions
in other assets, including the currency market, where a popular
trade has been to sell the dollar against the euro and other
currencies seen as benefiting from higher future interest rates.
The euro clawed up to $1.2435 on Tuesday, having dropped on Monday.
Oil prices continued to droop, with international benchmark Brent
hitting a one-month low before leveling off at $67.21 per barrel,
down 0.4 percent on the day.
U.S. crude futures were trading down 0.6 percent at $63.87 per
barrel, while gold nudged up for a fourth day in the last five, to
$1,340 per ounce.
"I think this is a healthy, albeit rather vicious correction (in
equity markets) and we may see more over the next week, but on the
whole I really wouldn’t panic," said broker Marex Spectron's head of
precious metals, David Govett.
"As such, I don’t think gold will go a lot higher."
(Additional reporting by Hideyuki Sano in Tokyo and Helen Reid in
London; Editing by Kevin Liffey)
[© 2018 Thomson Reuters. All rights
reserved.]
Copyright 2018 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content.
|