A six-day rebound in world stocks began to splutter on Tuesday, as bond market borrowing costs regained traction and the dollar kicked firmly away from a three-year low.
Europe’s main bourses saw steady start as lower domestic currencies helped their cause but weakness across Asia where Tokyo saw a 1% drop meant MSCI’s 47-country world share index was 0.2% in the red, Reuters reported.
The dollar meanwhile continued its rebound from three-year lows, having recovered 1.5% since Friday on the view that the US currency was due a correction after a brutal sell-off in recent weeks.
US Treasury 10-year yields—the benchmark for global borrowing costs—were also on the up again and approaching 3% for the first time in four years. “I just advise caution,” said Principal Global Investors’ chief global economist Bob Baur said about stocks as Wall Street futures also pointed lower.
“I‘m not sure whether this (early February sell-off) was the dip to buy, there will probably be a relapse and then another relapse, before maybe around mid-summer stocks make another run up.”
European bond yields pushed up too, with traders also working through the options of who could succeed Mario Draghi as European Central Bank chief next year after Spain’s economy minister was nominated for the bank’s number two job.
One of other recent catalysts for the recent market disturbances, the VIX volatility index—Wall Street’s “fear gauge”—was moving higher again as well, although at just over 20% in early European trading it was still well below early February’s peak of above 50.
Dow futures dropped more than 100 points in early trading, as traders returned from the long holiday weekend to face fresh selling pressure for US stocks.
Dow Jones Industrial Average futures shed 157 points, or 0.6%, to 25,080, while S&P 500 futures gave up 14 points, or 0.5%, to 2,721. Nasdaq-100 futures fell by 34.50 points, or 0.5%, to 6,752. Last week, the Dow and S&P 500 each gained 4.3%, while the Nasdaq Composite leapt 5.3%, with all three gauges snapping a two-week losing streak.
Asia Slips
Asian stocks also slipped Tuesday. Spreadbetters expected a mixed start for European stocks, with Britain's FTSE seen rising 0.1%, Germany's DAX dropping 0.1% and France's CAC dipping 0.07%.
MSCI's broadest index of Asia-Pacific shares outside Japan shed 0.25%. Australian stocks were little changed, South Korea's KOSPI lost 1.2% and Hong Kong's Hang Seng dropped 0.4%.
Japan's Nikkei retreated 1% after three successive days of gains.
Most Southeast Asian stock markets fell in line with broader Asia but Philippine shares recouped early losses to finish higher for a fifth straight session, their longest winning streak since December.
Indonesian shares ended the session 0.4% lower after briefly touching a fresh record high. Philippine shares reversed early losses to end 0.1% higher, led by index heavyweight SM Investments Corp, up 1.4%.
Singapore shares slipped 0.3%, weighed down by real estate and telecom stocks. Malaysia ended marginally lower, while Thai shares fell 0.5%. Vietnam was closed for a holiday.
Currencies Under Pressure
The dollar’s rebound also meant most emerging market currencies were under pressure. South Africa’s rand and Turkey’s lira both gave back more of their recent gains, while growing concerns about an alleged fraud at India’s second-largest state-run bank sent the rupee skidding to a near three-month low of 64.85 against the US dollar.
“Punjab National Bank will need to provide for at least a substantial portion of the exposure. As a result, the bank’s profitability will likely come under pressure,” rating agency Moody’s said as it put it on a downgrade warning.
Stock market indices declined for the third session in a row, with Sensex ending 71 points down at 33,703. Nifty edged 18 points lower to 10,360.
Against the yen, the dollar climbed 0.5% to 107.09 yen, having bounced back from a 15-month low of 105.545 set on Friday. The euro eased 0.4% to $1.2360, backing down from Friday’s three-year high of $1.255.
Spot gold slipped 0.4% to 1,341.06 an ounce, also corseted by the dollar’s bounce, while industrial metals including copper drifted lower for a second day in a thinner-than-usual trading due to new year holidays in China.
