World Economy

Global Equity Rout Deepens

Investors are watching closely for clues on the direction of the rout that started in US Treasuries and spread across global markets last week
Global Equity Rout DeepensGlobal Equity Rout Deepens

European and Asian equities fell and US share futures headed lower as global stocks extended the biggest selloff since 2016. Treasuries stabilized while the dollar weakened.

The Stoxx Europe 600 Index retreated for a sixth day in the longest losing streak since November, following similar moves across Asia as both regions took their cue from a US selloff on Friday. S&P 500 Index futures were also in the red, though they pared an earlier decline in a sign that losses may ease, news outlets reported.

While the yield on 10-year treasuries edged higher, those on core government bonds in Europe fell. The dollar was weaker against most of its major peers.

Investors are watching closely for clues on the direction of the rout that started in US Treasuries and spread across global markets last week, with some pointing to synchronized economic growth as a reason to remain optimistic. European Central Bank President Mario Draghi could help stem further losses when he delivers an annual report to the European Parliament on Monday.

Asian Share Markets Fall

Share markets in Asia have suffered their biggest selloff for more than a year as fears of rising inflation battered the bond market, toppled Wall Street from record highs and sparked speculation that central banks could raise interest rates.

Most major bourses across the Asia Pacific region fell in Monday trading as investors took fright at jobs figures from the US last week which showed wages growing at their fastest pace since 2009 and fuelling expectations that inflation was making a comeback after years of price stagnation.

Japan’s Nikkei sank 2.55% in its biggest fall since the day of Donald Trump’s election win, while Hong Kong was down more than 1%. In Australia the ASX200 index closed down 1.6%, or 95 points to 6,026, wiping a total of $33 billion from the value of the market, Reuters said.

Futures trading indicated that the FTSE100 index would fall more than 1% at the open on Monday, or around 78 points. The markets also reacted by pricing in the risk of three, or even more, interest rate rises from the US Federal Reserve this year.

European Stocks Decline

European stocks traded significantly lower on Monday morning, continuing a global market sell-off, as traders worried inflation might kick in faster-than-expected.

Global markets fell across the board after the Dow Jones industrial average tumbled 665.75 points to close down at 25,520.96 on Friday, capping off the index's sixth-largest points decline ever. On Monday, futures trading pointed to another day of losses on Wall Street.

Financial services stocks were the most affected sector by the global sentiment and fell 1.7% around 9:20 am London time. Looking across the European benchmark, there were only some stocks moving up, with Capita at the top of the index up by 3%. The shares of the British company were recovering some gains after the stock plunged to a 20-year low last week following a profit warning.

"For the time being, there's a lot of uncertainty now on the back obviously of the labor report on Friday because in a way what we are seeing now is that finally the market is waking up to potentially higher inflation," Sonja Laud, head of equity at Fidelity International, told CNBC Monday.

According to Laud, one should watch inflation developments "quite carefully" but not worry too much about the ongoing sell-off.

The Stoxx Europe 600 Index dipped 1.1%, hitting the lowest in almost 12 weeks with its sixth consecutive decline. The MSCI World Index of developed countries decreased 0.4%, reaching the lowest in almost four weeks on its sixth consecutive decline.

The MSCI Emerging Market Index sank 1.1% to the lowest in three weeks. Britain’s FTSE 100 Index decreased 1.1%, reaching the lowest in two months on its fifth consecutive decline and the biggest dip in six months.

Futures on the S&P 500 Index fell 0.3% to the lowest in four weeks.

Currencies and Bonds

The Bloomberg Dollar Spot Index dipped 0.1%. The euro climbed less than 0.05% to $1.2467. The British pound fell less than 0.05% to $1.4116, the weakest in a week.

The Japanese yen advanced 0.3% to 109.83 per dollar, the largest gain in more than a week.

The yield on 10-year treasuries climbed one basis point to 2.85%, the highest in about four years. Germany’s 10-year yield declined three basis points to 0.74%, the largest decrease in almost six weeks. Britain’s 10-year yield fell one basis point to 1.571%, the first retreat in almost two weeks and the biggest drop in almost three weeks.


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