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The biggest stock sell-off since February rolled from the US through Asia on Thursday, with benchmarks from Tokyo to Hong Kong seeing declines in excess of 3%. The dollar weakened against all major peers while the yen pushed higher and some emerging-market currencies came under pressure.
Treasuries, which helped trigger the stock decline when 10-year yields hit the highest since 2011, extended gains posted on Wednesday. China’s Shanghai Composite gauge tumbled more than 4%, set to close at a four-year low. Taiwan’s technology-heavy TWSE Index plummeted 6% in the region’s worst performance.
US futures extended losses from on Wednesday when the Nasdaq 100 Index tumbled more than 4% for its worst day in seven years. Behind the rout: fresh news of damage to corporate earnings from the trade war, along with intensifying pressure from the global shift away from monetary stimulus. Industrial and construction supplies distributor Fastenal Co added to angst that the trade conflict with China is raising materials costs that will crimp profit margins, while French luxury goods maker LVMH confirmed China is enforcing customs rules more strictly.
Ten-year Treasury yields slipped to 3.16%, down from the seven-year high of 3.26% reached on Tuesday. Yields have been climbing under the influence of a shrinking Federal Reserve bond portfolio and expectations for further interest-rate hikes. President Donald Trump, who has claimed credit for record US stock levels, said after the US market closed that the Fed is making a “mistake” and “has gone crazy.”
“The sharp rise in US 10-year yields has caused investors to suddenly reprice the impact of moving from post-crisis low yields to a rising rate environment,” Eleanor Creagh, an Australian market strategist at Saxo Capital Markets in Sydney, said by email. “We have the global growth engines, price of energy rising, price of money rising and quantity of money falling combined with the ongoing trend of deglobalization which has started to impact markets and the cracks are showing.”
Just a day before the start of America’s third-quarter earnings season, signs are mounting that companies might not be able to deliver the runaway growth that’s bolstered equities so far in 2018. Investors have long fretted that the trade war would crimp profits, and now a group of companies is warning that is happening at the same time that rising bond yields lift the cost of borrowing.
“Earnings are really important because that was part of the concern that sparked the sell-off,” Darrell Cronk, president and chief investment officer at Wells Fargo Investment Institute, told Bloomberg TV in New York. “The concern heading into the third quarter earnings season is about how much trade and tariffs will dent earnings.”
Trump also said the stocks decline was “a correction that we’ve been waiting for for a long time,” after being briefed on the market turmoil. Treasury Secretary Steve Mnuchin said he’s not surprised the market is having “somewhat of a correction.”
Gauges of equity volatility in Japan and Australia rose more than 40% after Wall Street’s “fear gauge,” as the Cboe Volatility Index, or VIX, is known, soared the most since February.
“This is the new paradigm for all of us to get used to,” Tom Essaye, founder of The Sevens Report, said on Bloomberg Radio. “Those of us who have been in the markets for a couple of decades now, you see the Dow down 1 000 points, you think ‘my God, the Dow’s down 1 000 points,’ but we saw this at the beginning of the year, and this is the new market that we have. It’s algo-driven. There are very few real people involved in these types of moves. As such we just have to get used to more volatility on these types of days.”
Elsewhere, American crude fell back below $73 a barrel as Hurricane Michael threatened to slash fuel demand across the US Southeast.
Here are some key events coming up:
The US Treasury is in the midst of $230bn worth of debt auctions this week. The IMF and World Bank will hold meetings in Bali from on Friday, where finance chiefs from around the world will gather. A closely watched gauge of US consumer prices probably remained elevated in September and rose 2.3% from a year earlier, according to forecasts ahead of Thursday’s release. JPMorgan Chase & Co, Citigroup Inc and Wells Fargo & Co kick off earnings season for US banks on Friday.These are the main moves in markets:
Stocks
Japan’s Topix index tumbled 3.5% as of 13:50 in Tokyo. Hong Kong’s Hang Seng slid 3.8%. The Shanghai Composite Index dropped 4.3%. South Korea’s Kospi index slumped 3.5%. Australia’s S&P/ASX 200 Index declined 2.6%. S&P 500 futures dropped 0.9%. The S&P 500 Index declined 3.3%. The Nasdaq 100 lost 4.4% to the lowest since July 3. The MSCI Asia Pacific Index tumbled 3.5 percent, on track for its lowest close since May last year.Currencies
The yen gained 0.1% to 112.20/$ after gaining 0.6%. The offshore yuan fell 0.3% to 6.9417/$. The euro bought $1.1563, up 0.4%. The Bloomberg Dollar Spot Index dropped 0.2%.Bonds
The yield on 10-year Treasuries fell one basis point to 3.15% Australia’s 10-year bond yield dropped three basis points to 2.72%.Commodities
West Texas Intermediate crude slid 1.7% to $71.93 a barrel. Gold fell 0.1% to $1 193.50 an ounce. LME copper dropped 1.6% to $6 139 a metric ton.* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER
