Global stocks were stuck in their biggest two-day dive in almost six months on Tuesday, January 30. and commodities were also jammed in reverse, as nerves about rising global borrowing costs cooled financial markets’ euphoric start to the year.
Lacklustre German state inflation numbers had halted U.S. Treasury yields – the benchmark for world lending rates – at 2.7 percent in Europe, but with an action-packed day ahead for U.S. markets the mood remained nervy.
It all had futures markets pointing to Wall Street going south again after the bond market strains and worries about Apple’s iPhone sales had triggered its biggest drop in five months on Monday.
That then rolled into Asia which had its worst day of the year so far, and then to Europe where stocks were down for the fourth day in the last five as traders took aim at cyclical sectors such as mining and financials.
“There were a number of technical indicators pointing towards market complacency and today’s move should provide some relief,” said Prabhav Bhadani, equity strategist at JP Morgan.
“You are seeing some sector rotation with again the winners hit the hardest. People are still looking to stay invested but looking at things that have not performed.”
There was also a hit from commodity markets as Brent oil limped back under $70 a barrel and industrial metals like nickel fell over 2 percent before paring their losses.
However, the bond market and currency markets remained the central focus. Monday’s rise in Treasury yields above 2.7 percent had pushed U.S. borrowing costs to their highest since mid-2014.
They hung there as New York trading loomed. Moreover, the bond market braced for potentially hawkish language from the Federal Reserve, which will begin its two-day policy meeting on Tuesday.
Attention on Trump’s State of the Union address later in the day was mostly on his views on an infrastructure overhaul and trade, with the future of the NAFTA pact hanging in the balance.
Though German inflation was weaker than expected, other European data was upbeat. France’s economy rounded off its strongest year since 2011, while Poland’s 2017 growth came in at 4.6 percent, almost 2 percent better than in 2016.
Britain’s pound struggled back above $1.41 having come under renewed pressure overnight as Brexit tensions continued to hound the government and its leader Theresa May.
Britain’s housing market continued to lose momentum, data showed, with mortgage approvals at their weakest in nearly three years following the Bank of England’s first interest rate hike in a decade.
Russian stocks edged higher as they shrugged off the risk of possible new sanctions from a newly published U.S. list of oligarchs close to the Kremlin.
The list, drawn up as part of a sanctions package signed into law in August last year, does not mean those included will be subject to sanctions.
It does include a wide circle of wealthy Russians though that run some of the country’s biggest companies, including the heads of Russia’s two biggest banks Sberbank and VTB, metals magnates and the boss of state gas monopoly Gazprom.
VTB Capital analysts said the list was “simply a mechanical listing” of prominent Russian politicians and business leaders which would not automatically lead to any immediate sanctions.
“Therefore, we do not expect any market reaction,” they said in a note.
Most Asian currencies had fallen overnight as the rise in bond yields had been lifting the dollar at that point.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.1 percent too but, after a string of all-time highs, it was still on track for a 6.5 percent monthly gain.
Australian stocks shed 0.9 percent, South Korea’s KOSPI lost 1 percent. Hong Kong’s Hang Seng 0.9 percent and Shanghai 0.8 percent, while Japan’s Nikkei was the stand-out as it dropped 1.4 percent, Reuters reports
