Stock plummeted in Wall Street’s session, falling the most in three months as concerns over European debt crisis contagion and weaker Chinese manufacturing data sent investors scurrying for the equities exit and into the US dollar and bonds.
The euro fell to a fresh one-year low.
The NASDAQ was the worst performer, down 3% while the S&P 500 fell 2.4% and the Dow Jones Industrial Average gave up 2%.
We’re seeing a classic example of the market running scared at the moment. It’s been attacked from many different angles. The European situation is causing the most angst as fears of contagion into Portugal and Spain escalate. As it stands, those countries are still standing on their own two feet, but it may not take too much selling of domestic bonds before spreads reach alarming levels.
In Asia, regional markets are all sharply lower today on the back of escalating fears that Greece’s debt problems will spread throughout Europe. As at 06:00, the Hang Seng is the worst performer, down 2.2% while the Shanghai Composite is down 1.7% and the Kospi is off 0.1%.
In Australia, the ASX 200 is currently 1.6% lower at 4660, having earlier traded as low as 4641. Sentiment is again poor with the financials, industrials and energy sectors the worst performers, while the materials sector is enjoying a day of relative outperformance as investors scour around for oversold names.
European markets are being heavily affected by the uncertainty that surrounds the sovereign debt situation; this is having a dramatic impact on risk which in turn is seeing investors running scared from commodities and resource names. Another factor that is weighing heavily on FTSE- listed miners such as BHP Billiton and Rio Tinto is the proposed ‘Resource Super Profit Tax’ to be imposed on resource companies with earnings in Australia, which would have a huge impact on prospective earnings. Already analysts have been busy downgrading prospective earnings, some by over 30%. This is being met with fierce criticism from the miners themselves and investors, who question the logic behind this and how uncompetitive this may make the Australian landscape. In the short term, until more clarity is provided, resources names may continue to underperform.
It is worth noting that after the early collapse on Wall Street, markets did stabilise and there’s a degree of optimism that when London and Frankfurt do open in a couple of hours time, a modest rebound may be seen. There is some scope that the sell-off could be looking a little dramatic but equity markets have been considered toppy by many for some months now leaving an adjustment arguably looking overdue.
It’s also worth bearing in mind there’s a handful of fundamental issues back in play – the ash cloud is threatening to hamper flights into the UK and there’s the general election tomorrow – both of these factors could offer further direction for the UK in the short term. We’ve also got the US non-farm payrolls due for release on Friday so that means the ADP payroll and Challenger job cut reports will be out today, while the earnings calendar also remains busy with news expected from L&G, Sage, Xstrata and Next in London. Soc Gen is also due to report, kicking off the French financial sector earnings season.
Ahead of the open we’re calling the FTSE up 1 at 5412, the DAX up 13 at 6020 and the CAC down 6 at 3883.
