Fear rises as stock sell-off hits global bourses
World stock markets fell 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 about 2%, leaving investors with little option but to seek traditional refuges such as gold and one of the initial triggers for the sell-off — benchmark government bonds.
Wall Street futures turned higher in Europe but commodities remained gloomy, with oil and industrial metals all tumbling as the year’s upbeat start for markets soured rapidly.
“Playtime is officially over, kids. Rising volatility painfully reminds some investors that one-way bets don’t exist,” analysts at Rabobank said.
The stock sell-off had been viewed by some as a healthy correction after a rapid rise over the past 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% and 4.1% on Monday, their biggest drops since August 2011. It was also the Dow’s worst fall on a pure points basis 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% of the average daily volume traded on Germany’s DAX and Europe’s Stoxx 50 in midmorning trade.
The euro Stoxx volatility index, Europe’s main market “fear-gauge”, experienced its biggest spike since the September 11 terrorist attacks on the US 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.”
“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%. Taiwan’s main index lost 5%, its biggest slump since 2011, and Hong Kong’s Hang Seng index dived 4.2%. Japan’s Nikkei dropped 4.7%, its worst fall since November 2016, to four-month lows.
The original trigger for the selloff was a sharp rise in US bond yields late last week after data showed US wages rising 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 US Treasuries yield rose to as high as 2.885% on Monday, its highest in four years. But a fall in share prices sent it as far back as 2.662%.
“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 would not panic,” said broker Marex Spectron’s head of precious metals, David Govett.