With US markets shut for their Presidents’ Day holiday overnight, the focus in Asia was on Europe and how it reacted to the ongoing turmoil in the Middle East.
As tensions escalated, The FTSE 100, French CAC 40 and the German DAX were all down more than 1%, as oil prices spiked above 6%.
Heavy selling pressure in Asia
Across Asia, regional markets are seeing heavy selling pressure as escalating turmoil in the Middle East drives investors away from riskier asset classes. News that Moody’s has downgraded Japan’s Aa2 credit rating to negative has also hit sentiment. In China, the Shanghai Composite is the worst performer, down 2.2% while elsewhere the Nikkei 225, Kospi and Hang Seng are all down between 1.8% and 2%.
Asian markets clearly could be thematic of what we can expect in Europe, with traders de-risking their portfolios. Safe haven assets were bid higher with the USD, Japanese Yen and US treasuries seeing inflows. The Yen pushing higher despite Moody’s changing Japans government debt outlook to negative. Reports from Reuters that two Iranian naval vessels had entered the Suez Canal may weigh on sentiment and the fact Libyan leader Qaddafi made a live address saying to the nation he hadn’t resigned will surely stoke further passion in the protestors as well.
Australian news
The main news out of Australia was that BHP would be acquiring Chesapeake Energy corp. Fayetteville shale gas holding for $4.75b as well as announcing plans of its $5b off market share buyback. Investors certainly warmed to the news, with shares closing up 1.6%.
Yesterday’s selling is continuing across the region as the tension in the Middle East sends waves of uncertainty through financial markets. The fact that US markets were closed for their Presidents’ Day holiday overnight hasn’t helped the situation; US futures are down more than 1%, with a lot of participants waiting to see what happens during tonight’s session.
Safe havens popular amidst uncertainty
At the end of the day, nobody really knows where this could end; the fact that China has banned media footage of the Middle East events indicates they’re worried. There’s a lot of uncertainty out there and markets hate uncertainty. Money is flowing out of riskier assets - namely equities - into perceived safe havens like precious metals and the US dollar.
Oil price surge
There is also some concern about the oil price after it surged more than 5% overnight. Whilst normally seen as a proxy for the global economic recovery, the market seems concerned we may be nearing a tipping point, where rocketing Crude Oil prices actually begin to hinder the recovery. Continued turmoil in the Middle East would likely see oil prices continue their ascent.
Looking at local data, UK public sector finance data for January and US consumer confidence for February will headline in terms of the economic data, whilst earnings from a handful of retailers in the US - including Wal Mart, Macy's and Home Depot - could offer further insight into economic confidence across the world's largest economy as a whole. Analysts will however remain poised to see how the situation plays out in the likes of Libya, and also where the unrest is seen next. Ahead of the open we're calling the FTSE down 30 at 5985, the DAX down 34 at 7288, the CAC down 21 at 4076 and the DOW down 88 at 12,303.
