Global markets selloff picks up speed
An electronic board showing the stock index and prices at a securities brokerage in Beijing, China, Oct. 11, 2018. EPA-EFE/ROMAN PILIPEY
Madrid, Oct 11 (efe-epa).- A sharp selloff in United States stocks spilled over into global markets Thursday, with technology among the hardest hit again, as investors refocused on slowing global growth, rising bond yields and increasing trade tensions, according to a report from the Dow Jones Newswires made available to EFE.
The Stoxx Europe 600 slumped 1.8 percent in European morning trade, while US futures pointed to a 1.2 percent opening decline for the Dow Jones Industrial Average after the blue-chip index tumbled more than 3 percent on Wednesday.
Chinese stocks fell over 5 percent, while indexes in South Korea and Japan shed around 4 percent apiece, with declines accelerating throughout the day.
While the selloff adds to the pain that many emerging markets have felt in recent months, US stocks have largely been isolated from much of that turbulence. That changed Wednesday, with the Dow Jones Industrial Average falling 832 points, or 3.2 percent, and the tech-heavy Nasdaq Composite skidding 4.1 percent, its worst decline since June 2016, when the Brexit vote concluded.
The rotation out of tech and other growth stocks has been sparked in part by the recent jump in government-bond yields and the Federal Reserve's interest-rate increases. President Donald Trump called out the US central bank on Wednesday, saying "the Fed has gone crazy," as it continues to tighten monetary policy.
"The rise in Treasury yields has been the primary catalyst for the selloff in equities," said Steven Friedman, senior economist at BNP Paribas Asset Management, who added that higher bond yields make equities less attractive to potential buyers.
"Equity investors are growing concerned that the [Fed]'s projected rate path will choke off the expansion," he said.
The NYSE FANG+ Index – which tracks 10 global heavyweights including US and Chinese tech giants – fell 5.6 percent on Wednesday, its second-worst decline on record. It is down 10 percent so far in October.
Futures markets pointed to further declines for US technology stocks on Thursday. Amazon.com Inc. was down 2.4 percent in pre-trade, while Netflix Inc. shed 2.2 percent and Facebook Inc. fell 1.4 percent.
The rise in bond yields momentarily halted on Thursday as investors piled into havens to shelter from the turbulence in equity markets. The yield on the 10-year Treasury note declined to 3.158 percent, according to Tradeweb, from 3.221 percent on Wednesday. Yields fall as prices rise
Gold prices rose 0.6% to $1200.80 an ounce.
Bond yields across much of Europe also fell except in Italy, where concerns over the country's antiestablishment government's budget plans have sparked a selloff in recent weeks.
European technology stocks – which make up a relatively small chunk of the region's markets – were under pressure, with the Stoxx Europe 600 technology subindex down 2 percent recently. The oil-and-gas sector was down 2.7 percent amid a decline in energy prices, with Brent crude down 1.7 percent at $81.66 a barrel. Financial services firms were also under pressure.
In Asia, Tencent Holdings Ltd., the most valuable company listed in the region, fell nearly 7 percent. Other Chinese tech giants such as Baidu Inc. and Alibaba Group Holding Ltd., both of which are listed in the US, also fell sharply.
China's Shanghai Composite Index slid 5.2 percent, while the tech-heavy Shenzhen market fell 6.5 percent, taking losses to about 32 percent so far this year and making it one of the worst performers among the world's major markets. Taiwan's Taiex index, dominated by semiconductor companies and Apple Inc. suppliers, dropped 6.3 percent, its worst slide since January 2008, the Dow Jones report added.
One notable area of calm on Thursday: emerging-market currencies. The Turkish lira was up 1.5 percent against the dollar, the South African rand rose 0.6 percent and the Mexican peso gained 0.4 percent. That comes on the back of hefty losses this year for emerging markets, which have suffered amid higher US interest rates and global trade tensions.
The WSJ Dollar Index, which measures the greenback against a basket of 16 others, was down 0.2 percent.
Some investors and analysts still see reasons to be optimistic amid the equity selloff, especially on US stocks.
Ian Hui, global market strategist at J.P. Morgan Asset Management, said investors have been surprised by the speed at which bond yields have climbed, Still, sharp spikes in market volatility aren't unusual and the turbulence only tends to persist if there is an exceptional event associated with it, he said.
"We still expect equities to find their footing," said Hui.
Andrew Milligan, head of global strategy at Aberdeen Standard Investments, highlighted the significance of the US earnings season – which starts in earnest on Friday – given the expectations for solid profits growth.
"Surveys show that many investors had high cash positions at the start of the month, so those companies, sectors or markets with good valuations should receive support," he added.
Some of the largest US banks are set to release earnings on Friday including JPMorgan Chase & Co. and Citigroup Inc.
But investors also point to other risks on the horizon, with trade tensions between the US and China remaining elevated. Meanwhile, concerns are building that the falling yuan and a slowdown in the Chinese economy could spill over into global markets.
The yuan remains near its weakest level of the year in offshore markets, slightly down on the day at 6.9374 to the dollar. The yuan hasn't passed 7 to the dollar in over a decade. In 2015 and 2016 when the currency weakened sharply, the depreciation sparked capital outflows from China, an outcome that Beijing is eager to avoid this time around.
By Steven Russolillo and Mike Bird