Wednesday, 19 September, 2018

European shares open lower after US-led slide

The sharp fall in Chinese stocks is having a ripple effect across Asian markets Markets Right Now: Asian markets track plunge on Wall Street
| 10 February, 2018, 09:51

China's stock market benchmark has fallen as much as 5.5 percent after the sharp sell-off on Wall Street.

Markets followed USA stocks lower after the Dow, coming off a record high, entered a "correction" - that is, a 10 per cent decline from its latest peak - for the first time in two years.

In Hong Kong, the benchmark Hang Seng Index was down more than 3 percent by midday.Financial and property shares took the bigggest hits in both China and Hong Kong. Hong Kong's benchmark index was down 3.1% at 29,508.89 as of 9:58am, heading for a weekly loss of 9.5%, its worst since 2008.

But investors are anxious about inflation and the possibility that the U.S. Federal Reserve will hike interest rates faster than previously anticipated in order to rein it in.

JPMorgan Asset Management's chief market strategist Tai Hui said investors were focusing on US inflation data due next week for clues on what to do next. "With financial markets vulnerable at the moment, this was not great timing for such political brinksmanship". Britain's FTSE 100 fell 1.5 percent.

US stocks started to tumble last week after the Labor Department said workers' wages grew at a fast rate in January.

Last Friday's strong USA jobs and wages figures strengthened the feeling that inflation was on the rise and that interest rate increases would not be far behind.

Shares were lower in all Asian markets after Wall Street officially began its first correction in two years, though losses were moderate with no sign of panic selling. Even after this week's losses, the S&P 500 index is up 12.5 percent over the past year.

In late afternoon trading, the Dow Jones Industrial Average was down 2.12 per cent, at 24,497.56, the S&P 500 had lost 1.88 per cent, to 2,647.33 and the Nasdaq Composite had dropped 2.02 per cent, to 6,949.55.

The market, now in its second-longest bull run of all time, had not seen a correction for two years, an unusually long time. Many market watchers have predicted a pullback for some time, saying stock prices have become too expensive relative to company earnings.


"We are witnessing the longest rally in the history of Chinese stocks", analysts at Goldman Sachs wrote to clients early this week, adding, "A tactical correction appears overdue and markets could fall further". "However, our view remains that it's just another correction", said Shane Oliver of AMP Capital in a report.

Chris Weston, chief market strategist at the online trader IG in Melbourne, said volatility was the main problem.

Stocks are not falling because investors have doubts about the economy. It's still up 15 percent over the past year. The housing industry is solid and manufacturing is rebounding. Manufacturing is rebounding. Households and businesses are spending freely.

Some worries over the health of the world's second biggest economy also resurfaced, as China's producer and consumer inflation eased in January. That combination usually carries stocks higher.

He said the Vix volatility index - also known as the "fear index" - had spiked sharply this year "and that means there is no confidence about going out and filling your boots with stocks".

At the same time, higher interest rates can make investment alternatives to stocks, such as bonds, more attractive.

The Bank of England said that interest rates probably need to rise sooner and by a bit more than it thought only three months ago, which boosted sterling.

In currency markets, the dollar edged up to 108.95 yen from Thursday's 108.73 yen. The euro held steady at $1.2248.

WELLINGTON: The S/NZX50 Index fell 0.2 per cent, to 8177.14.

The global forecast for the Asian markets is broadly negative thanks to growing concerns over interest rates and a drop in crude oil prices. It retreated 70 cents on Thursday to $68.81.

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