Financial markets are signaling that investors have lost faith in policy makers’ ability to support the global economy.
Turbulence tore through global markets on Thursday as investors sought the safety of Japanese yen, gold and top-rated bonds.
Europe got off to some torrid start, with Britain’s FTSE 100 down 2.3 per cent, Germany’s DAX 2.4 per cent lower and France’s CAC 40 down 2.8 percent. U.S. futures will also be pointing to 1 per cent drop for Wall Street later after Fed Chair Janet Yellen’s interest rate comments didn’t inspire lasting gains. Swedish shares slid even while the central bank cut its key rate of interest further below zero. The yen leaped to its highest in more than the usual year. Major sovereign bond markets rallied, pushing U.K. gilt yields to some record low. Gold rose beyond $1,200 an ounce, while U.S. oil traded below $27 a barrel.
Signals by central banks from Europe to Japan that additional stimulus reaches the ready are neglecting to ease investor concern that global growth will keep slowing. Citigroup’s Economic Surprise Index already indicates data in Number of 10 economies are falling short of estimates through the most since April 2013, along with a selloff in oil and weakening credit financial markets are exacerbating the malaise. Yellen suggested the central bank might delay, although not abandon, planned interest-rate increases in response to recent turmoil in financial markets.
“Over recent years whenever we got not so good news, equity markets would rally because they would interpret this as possibility of central banks to go more dovish,” said Mohit Kumar, head of rates strategy at Credit Agricole SA’s corporate and investment bank unit in London. “Now that correlation is shifting to bad news is really not so good news. Investors are worried over central banks’ policy options because of the market is driven by factors that they have little if any treatments for.”
Stocks
The Stoxx Europe 600 Index slid 3.2 per cent at 11:11 a.m. working in london, extending its loss this year to 17 per cent as disappointing earnings releases exacerbated bearish sentiment. All industry groups declined, with banks the worst performers.
Societe Generale SA tumbled 12 percent after reporting that quarterly profit missed estimates as earnings at the investment bank fell and it put aside provisions for potential legal costs.
Rio Tinto Group slipped 4.1 per cent because it scrapped its progressive dividend policy and hang out new spending cuts. Zurich Insurance Group AG lost 3.5 per cent after posting a loss of revenue. Nokia Oyj dropped 1.4 per cent as it missed sales projections.
The OMX Stockholm 30 Index dropped 3.1 percent. Sweden’s central bank lowered the repo rate to minus 0.50 per cent from minus 0.35 percent. A cut was predicted by 10 of the 18 analysts surveyed by Bloomberg, though only three had anticipated this magnitude.
“Financial markets are repricing for any global growth slowdown,” said Tim Condon, head of Asian research at ING Groep NV in Singapore. “Expectations that monetary policy would be able to do much have diminished considerably.”
The MSCI All Country World Index slid 0.5 percent, taking it to within about 0.6 percent of the bear market.
Standard & Poor’s 500 Index futures dropped 1.9 percent. Contracts on the Dow Jones Industrial Average slid 1.8 per cent after the index declined 0.6 percent last session amid losses for Disney world Co. and International Business Machines Corp. The S&P 500 initially climbed on Yellen’s comments, before erasing gains to end Wednesday down less than 0.1 per cent.
The Fed Chair also highlighted uncertainty over the pace of China’s growth and also the related rout in commodities in her own testimony, concerns that have roiled financial markets all year round and twice pushed global shares to the brink of the bear market.
Emerging Markets
The MSCI Emerging Markets Index sank 2.2 percent, at risk of the largest decline in three weeks, with energy producers leading losses.
As trading resumed in Hong Kong, the Hang Seng Index fell 3.9 per cent, for its worst begin to a lunar new year since 1994. The Hang Seng China Enterprises Index of mainland companies slumped 4.9 per cent to its lowest since March 2009. Markets remained closed in mainland China, Taiwan and Vietnam.
Kyle Bass, the hedge fund manager who successfully bet against mortgages throughout the subprime disaster, said China’s banking system may see losses of more than 4 times those suffered by U.S. banks during the last crisis. Should lenders lose 10 % of assets due to nonperforming loans, the country’s banks will see about $3.5 trillion in equity vanish, based on Bass.
Korea’s Kospi lost 2.9 percent as North Korea said it is closing a commercial park jointly run with Columbia, each day after the government in Seoul announced it was taking out its companies to punish Kim Jong Un for his recent nuclear make sure long-range rocket launch.
In Russia, the Micex Index dropped 2.1 per cent as oil retreated, as the Bloomberg GCC 200 Index of Gulf stocks slid 1.7 per cent, extending this week’s decline to three.1 percent.
India’s S&P BSE Sensex lost 3.4 per cent, set to go in a bear market after declining a minimum of 20 per cent from its January 2015 peak. Benchmark gauges in Nigeria, Turkey, Poland and Thailand dropped at least 1.5 per cent.
The Russian ruble and South Africa’s rand led developing- nation currencies lower with a gauge of 20 forex rates slipping 0.2 per cent, reversing earlier gains.
The offshore yuan climbed to the strongest level in additional than a month after data signaled that China’s central bank is supporting the exchange rate.
The extra yield investors demand to possess emerging-market debt rather than U.S. Treasuries jumped 12 basis suggests 506, the greatest since May 2009, according to JPMorgan Chase & Co. indexes.
Currencies
The yen jumped against all its 16 major counterparts, rising the most against the currencies of Australia, Norway and New Zealand.
The yen temporarily pared gains after Masatsugu Asakawa, vice minister for international affairs at Japan’s finance ministry, said he’s watching currency markets to ascertain if moves are speculative. HSBC Holdings Plc earlier warned there is a growing risk the BOJ stages in to market yen or cut rates of interest.
“Markets appear to be testing the resolve of the BOJ and questioning the ability of monetary policy action to produce a weakening Japanese yen,” said Sam Tuck, a senior currency strategist at ANZ in Auckland. “Nobody would like their currency bouncing around too rapidly. That in itself, regardless of the amount, does claim that there could be some smoothing action just to slow it down.”
Bonds
Yields on U.S. 10-year Treasuries slipped five basis points, or 0.05 per centage point, to at least one.62 per cent, having slid earlier towards the lowest since December 2012.
Yellen added fuel for this year’s bond rally by suggesting on Wednesday the central bank may delay raising rates of interest. She is scheduled to conclude a two-day appearance before U.S. lawmakers Thursday in Washington. The U.S. plans to sell $15 billion of 30-year bonds.
The 10-year gilt yield fell to a record-low 1.296 per cent. The yield on German 10-year bunds slid to less than 0.16 percent, minimal since April, and HSBC said hello may drop to as little as 0.05 percent in the next 4 months. A gauge from the euro region’s inflation outlook reached the cheapest on record.
The cost of insuring corporate debt rose, resuming a rise which has pushed indexes to the highest since 2013. The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies climbed five basis points to 123 basis points. A gauge of swap on junk-rated companies jumped 29 basis suggests 483 basis points. Measures of swaps on financial companies’ senior and junior debt also climbed.
Commodities
Oil extended losses in the lowest near the coast three weeks as crude stockpiles at the delivery point for New York futures expanded to a record, although nationwide supplies slipped. West Texas Intermediate fell 3.7 percent to $26.44 a barrel and Brent lost 1.6 percent to $30.35.
Gold rallied 2.4 per cent to $1,226.38 an ounce after Yellen’s comments burnished an investment case for the metal which has been the best performing commodity in 2016. Silver rose 2.3 per cent and platinum added 1.3 per cent.
Bloomberg.com
