Wall Street goes into reverse
In another volatile day of trading, US markets ended the day in negative territory after a new rise in bond yields.
Yields rose after a disappointing bond auction and reports of a new budget deal which would increase current spending caps.
So the Dow Jones Industrial Average closed down 19.42 points at 24,893.35. After an earlier rise of 381 points this was its biggest turnaround since August 2015. Meanwhile the S&P 500 ended down 0.5%.
On that note we’ll close up until tomorrow.
European markets close higher
After their declines on Tuesday, European markets have taken their cue from the overnight rise on Wall Street and also the opening optimism in the US.
The FTSE 100, which saw its biggest losses since the Brexit vote on Tuesday, has recovered more than half of the decline, and there was a similar picture elsewhere. Signs that Germany was putting its political differences aside also helped sentiment. The final scores showed:
- The FTSE 100 finished up 138.02 points or 1.93% at 7279.42
- Germany’s Dax rose 1.6% to 12,590.43
- France’s Cac climbed 1.82% to 5255.90
- Italy’s FTSE MIB was 2.86% better at 22,986.18
- Spain’s Ibex ended up 1.7% at 9976.9
- In Greece, the Athens market added 1.33% to 849.94
On Wall Street, the Dow Jones Industrial Average is currently up 132 points or 0.49%, off its best levels after US ten year bond yields rose to a day’s high of 2.828% in the wake of a disappointing auction.
On that note, it’s time to close for the day. We’ll be back tomorrow (unless something major happens before then). Thanks for reading and all your comments.
Meanwhile, Greece is mulling pushing ahead with the sale of a seven-year euro benchmark bond - postponed on account of the sell-off - on Thursday, bankers say. Helena Smith reports from Athens:
After years of exile, the debt-stricken county is keen to prove it can tap international markets again. The seven-year issue would be its boldest market foray yet, and was formally announced on Monday with trading expected to take place Tuesday. Instead, Greek finance officials took one look at the market rout and thought better of it. But depending on how the US markets perform, trade could begin Thursday bankers are now saying.
Greece hopes to raise €3bn with the issue as part of efforts to build up a €19bn cash buffer that would allow the country to cover debt repayments independently when its third international bailout programme officially expires in August.
Updated
Back with cryptocurrencies, and Bitcoin is up 4% to $8,050 despite negative comments from Goldman Sachs.
Miles Eakers, chief market analyst at payments specialist Centtrip, said:
Bitcoin staged a solid recovery today, having previously fallen 70% from its record highs last December. The cryptocurrency briefly dropped below the $6,000 a coin level before gaining almost 40%, and is now back above $8,000 a coin.
The rise comes at a time when Goldman...suggested market participants should be ready for cryptocurrencies to hit zero. According to the bank, the fall in cryptocurrencies, which erased nearly $500 billion worth of market value over the last month, could get a lot worse. Nouriel Roubini, an American economist, suggested that bitcoin was ‘much worse’ than Tulipmania.
His comments had zero impact on the recent surge in Bitcoin, suggesting that some of the optimism around cryptocurrencies is still there. A break of $9,500 would signal further gains for the coin, but a longer term move lower is more likely.
US rates should not rise until the middle of the year - Fed's Evans
US interest rates should not rise before the middle of the year, according to Chicago Federal Reserve president Charles Evans.
With the recent strong data - notably Friday’s wage growth - analysts have been becoming more convinced a rate rise is on the cards in March, with four rather than three rises in the rest of the year.
But speaking at a conference in Iowa, Evans said:
With the data I see today, my policy strategy would be to keep policy on hold until midyear or so in order to assess the incoming inflation data. If we get to that point and have more confidence that inflation is moving up sustainably, then further rate increases would be warranted.
In contrast, suppose inflation picks up more assuredly, as many expect. Then, we still could easily raise rates another three or even four times in 2018 if that were necessary. And I would support such a faster pace if the data point convincingly in this direction.
Evans said he expected US GDP to grow between 2.5% and 2.75% this year, with growth slowing over the next two years as the boost from Donald Trump’s tax cuts wears off.
As for inflation, he expects it to rise gradually over the next few years:
There is a hint that this may be in train today. Some inflation indicators over the past couple of months have been positive. I also am hearing a bit more commentary from manufacturers about higher commodity prices. While wage increases have been disappointingly low, the most recent data exhibit a firming trend. And I’ve recently been hearing from more of my business contacts that firms are raising wages, giving additional bonuses, and boosting benefits. These are all positive signs for wage growth and clear signs of tighter labor markets.
In my forecast, I expect inflation to rise gradually to our 2 percent target, perhaps reaching it in late 2019 or in 2020. But despite the indicators I just noted, I have not yet seen many actual increases in consumer prices. So, my forecast of reaching our target is still just a forecast. There is still a role for accommodative monetary policy to bring us back to our 2 percent inflation target.
Evans voted against a rate rise in December but is a non-voting member this year, so his comments won’t necessarily hold much sway when it comes to the path of interest rates, although his reasoning is interesting.
Updated
Chris Beauchamp, chief market analyst at IG, said:
The rout in stocks seen in the first two days of the week seems a long way away now, as a classic rebound in sentiment sees the Dow gain over 200 points within the first two hours, while the FTSE 100 continues to claw its way higher.
The ‘cash on the sidelines’ theory gets a lot of stick these days, since who in their right mind would still hold cash when the market kept racing higher, but evidently equity investors (or their passive machine counterparts) have managed to scrimmage behind the sofa for some more funds in order to go bargain hunting in stock markets. While we can’t tell what will happen next, the current course of events has mirrored previous market selloffs – brief panic, steady recovery and then a return to the longer-term rally. It is, after all, a bull market.
The rebound in markets continues. The Dow Jones Industrial Average is now up 311 points or 1.28%, while the FTSE 100 is 2.26% better, Germany’s Dax is up 1.8% and France’s Cac has climbed 1.89%.
Oil slides on US stocks and production figures
Oil prices have come under pressure amid a rise in US crude stocks and a jump in US production.
Opec and Russia have agreed output cuts to try and support crude prices, but there were concerns that US producers would step in to fill any shortfalls as the price rose. Last week the Energy Information Administration reported that US production rose by 332,000 barrels a day to a record high of 10.25m barrels a day.
Meanwhile crude inventories rose by 1.9m barrels last week. Brent fell more than 0.8% on the news to $66.18, giving up all the gains made so far this year.
The news from the US offset reports that the UK Forties pipeline was shut with no clear indication of when it would re-open.
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Here’s our story on Donald Trump’s latest comments on the stock market. Dominic Rushe writes:
The stock market is making a “big mistake”, Donald Trump said on Thursday, days after a record-breaking sell-off on the US exchanges.
“In the ‘old days,’ when good news was reported, the Stock Market would go up. Today, when good news is reported, the Stock Market goes down. Big mistake, and we have so much good (great) news about the economy!” Trump wrote on Twitter in his first public comment on the sell-off.
The Dow Jones industrial average lost 1,175 points on Monday following another sharp fall last Friday. The drop appears to have been triggered by news of stronger than expected growth in wages which fueled expectations of a sharper rise in interest rates from the Federal Reserve.
Commenting on the markets on Tuesday White House press secretary Sarah Huckabee Sanders said the US economy was “incredibly strong” and “nothing that’s taken place over the last couple of days in our economy that’s fundamentally different than it was two weeks ago”.
Since his election Trump US – and global – stock markets have hit a series of record highs. Trump has consistently pointed to rising stock markets as proof that his economic policies are working.
The full report is here:
Stock market falls a "big mistake", says Trump
President Trump’s boasting about the rise in the US stock market came shortly before the crash, and he has been notably silent about it since then. Until now that is:
In the “old days,” when good news was reported, the Stock Market would go up. Today, when good news is reported, the Stock Market goes down. Big mistake, and we have so much good (great) news about the economy!
— Donald J. Trump (@realDonaldTrump) February 7, 2018
Updated
The bounce on Wall Street has given an extra lift to European markets.
The FTSE 100 is now up 105 points or 1.5%, while Germany’s Dax has risen 0.9% and France’s Cac has climbed 0.8%.
As a sign we’re in for another volatile day, the Dow is now up 97 points.
Wall Street opens lower
After Tuesday’s rollercoaster ride in US markets which ended with the Dow Jones Industrial Average up 567 points and the S&P 500 breaking a four day losing streak, Wall Street is heading lower again.
As politicians scramble to put together a two year Budget plan that would prevent another government shutdown, the Dow Jones Industrial Average opened down around 111 points but the decline was quickly reduced to just 29 points.
The S&P and the Nasdaq Composite both opened down 0.32%.
Ahead of Wall Street’s open, Federal Reserve voting member William Dudley says he believes “the markets are functioning quite well.” But he also said:
Fed's Dudley (Voter) says that a sustained drop in the stock market would impact his outlook, and stresses that the recent sell off wasn't that a big of a bump
— Anthony Barton (@AntBarton89) February 7, 2018
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European Commission upgrades growth forecasts
Europe’s economy is expected to show robust growth this year and next after a better than forecast performance in 2017, according to the European Commission.
In its latest forecasts the Commission said both the eurozone and the wider EU saw GDP grow by 2.4% last year, better than the 2.2% and 2.3% respectively that it predicted in November.
For 2018 the Commission expects a slowdown to 2.3%, although this is higher than the 2.1% it forecast in November. It is forecasting a further decline to 2% in 2019, but again this is higher than the November estimate of 1.9%. It said:
This is a result of both stronger cyclical momentum in Europe, where labour markets continue to improve and economic sentiment is particularly high, and a stronger than expected pick-up in global economic activity and trade.
On inflation it expected a modest pick-up next year:
Core inflation, which excludes volatile energy and unprocessed food prices, is expected to stay subdued as labour market slack recedes only slowly and wage pressures remain contained. Headline inflation will continue to reflect the significant influence of energy prices and is forecast to rise modestly. Inflation in the euro area reached 1.5% in 2017. It is forecast to remain at 1.5% in 2018 and to increase to 1.6% in 2019.
Updated
And more positivity about the markets for 2018, this time from Goldman Sachs:
$GS strategists Tim Moe, Peter Oppenheimer, Kathy Matsui & David Kostin talk global #equity markets: positive 2018 outlook & strong market fundamentals at GS Global Macro Conference pic.twitter.com/sb2A5K5rwh
— Goldman Sachs (@GoldmanSachs) February 7, 2018
Here’s bit of context for the recent market falls:
S&P 500: the longest run in history without a 5% pullback ended on Monday, 404 trading days. $SPX pic.twitter.com/CJS3m1L33h
— Charlie Bilello (@charliebilello) February 7, 2018
James Swanson, Chief Investment Strategist at asset manager MFS, is also in the ‘correction not a crash’ crew.
He argues that the economics fundamentals are solid, so shares shouldn’t keep plunging.
Conditions don’t appear to be in place for a prolonged market downturn.
Corporate balance sheets remain strong, while fourth-quarter earnings have surpassed expectations. Additionally, the credit markets aren’t signaling that a major shift in risk appetite has taken place. High-yield bond spreads have widened, but only marginally, from historically tight levels. Recent yield increases in non-investment-grade bonds have been driven more by rising Treasury rates than by growing credit concerns.
That’s a source of comfort for equity investors.
In just over an hour, we’ll discover if Wall Street agrees...
FTSE 100 keeps rising
London’s stock market is creeping higher, helping the FTSE 100 recover from yesterday’s 10-month low.
The Footsie is now at its daily high, up 80 points or 1.1%. That shows that some confidence has returned to the City. However, it still leaves shares down 6% so far this year.
Financial stocks are leading the rally, with energy stocks and utilities also in demand.
City Index market analyst Fiona Cincotta remains cautious, though:
Whilst we don’t expect this sell off to continue for an extended period of time, given that the fundamentals remain strong and unchanged, it is difficult to call the bottom and judge whether stocks have fallen sufficiently for investors to see value once again.
After days of falls, Bitcoin is staging a rally today.
The digital currency has bounced back up to $8,200, having hit a near-three month low below $6,000 on Tuesday.
Bitcoin has been under pressure from regulators and politicians in recent weeks, keen to crack down on the use of digital currencies for money-laundering and reckless speculation. But Nigel Brahams, partner at London law firm Collyer Bristow, argues that we shouldn’t write bitcoin off:
“The current situation is like the dot com boom and bust in the late 1990s, when cynics who couldn’t face up to a changing world wrote off new online businesses too readily.
The weak businesses and valueless coins will fail, but the really good projects like Ethereum and Bitcoin are here to stay, much like Amazon 20 years ago.”
America’s Dow Jones industrial average is being called down 1%, when trading begins in three-and-a-half hour.
The Dow is looking at a 285 point drop at the openhttps://t.co/VaDyOqo9U0 pic.twitter.com/kJwQXoEyuR
— Jonathan Garber (@BondsFx) February 7, 2018
Markets are still on edge and U.S. futures are retreating. Here's a look at Dow Jones futures https://t.co/XxY9gNUjcB pic.twitter.com/I7xsxiCVzh
— Bloomberg (@business) February 7, 2018
There’s less fear in the markets today, but volatility remains high, says Carlo Alberto De Casa, Chief Analyst at ActivTrades.
It is curious considering the fact that for years we were fighting against low inflation or even deflation and now this correction is generated by growing expectations of inflation in the US.
American stock indices lead the recovery in the last few year and now they spread the uncertainty around the world.
Investors who had wagered that the markets would remain calm have been burned by this week’s turmoil.
For example, those who bought a security from Japanese bank Nomura, which moved inversely to market volatility, have lost almost all their money.
Bloomberg explains:
Nomura Holdings Inc. issued an apology after investors in a $300 million product betting on low volatility were all but wiped out during this week’s stock-market turmoil.
Japan’s biggest brokerage said Wednesday that it has received inquiries from individual investors after its decision to redeem the exchange-traded notes at a 96 percent discount.
“We sincerely apologize for causing significant difficulties to investors,” its Nomura Europe Finance unit said in a statement a day earlier.
Nomura’s Next Notes S&P500 VIX Short-Term Futures Inverse Daily Excess Return Index ETN involved a bet against stock-market gyrations by moving in the opposite direction to a gauge of volatility. Its early redemption -- the first of its kind in Japan -- was triggered after the notes lost more than 80 percent of their value amid the global equity-market selloff.
Nomura issued an apology for a VIX-linked note that exploded https://t.co/DRm71kWhsu
— Joe Weisenthal (@TheStalwart) February 7, 2018
The bulls still have the upper hand over the bears on Europe’s trading floors today.
After two hours trading, the main indices are all up, as investors hold their nerve.
The FTSE 100 has dipped back a little, up 35 points at 7179. Germany’s DAX is up 0.6%, while the Italian FTSE MIB has gained 0.9%.
Shares may have found some support after recent losses, but it’s not a strong recovery.
Analysts at FX Pro reckon investors are using the turmoil as a cautious buying opportunity:
It may still be too early to talk about a return to growth or to celebrate another fast and easy victory of the bull market. Rather, it seems more likely that panicked selling will give way to more calculated portfolio rebalancing.
#Indices recovered yesterday, and are looking to add to gains as dip buyers come in. $FTSE, $DAX $SPX
— IG (@IGcom) February 7, 2018
https://t.co/R9HohYGkUP pic.twitter.com/j2t72yv8IH
Reuters have a good explanation for how computerised trading, and bets on low volatility, combined to cause this week’s market mayhem:
It was a steep spike in yields last Friday that sparked the initial rout on Wall Street, forcing sales by a host of highly leveraged funds, which ramped up volatility and drove yet more selling.
Many of these were algorithmic funds crowded into similar trades - long stocks and short volatility. The selling then cascaded through their computer systems in a way almost beyond human intervention.
The pivotal gauge of S&P 500 volatility, the VIX , did come off almost 20 points overnight but was still relatively elevated at 29.98 percent.
“Short volatility funds were caught by the spike in the VIX and had to cover,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
“You’re a genius until you’re not and when it takes just a day or two to unwind your whole strategy then you were never a genius,” he added. “But volatility does cluster, so there is no guarantee that markets are out of the woods yet.”
Grand coalition deal in Germany - reports
Important news out of Berlin. Angela Merkel has reportedly reached a deal with Germany’s Social Democrats to create a new grand coalition.
After overnight talks, the CDU/CSU and the SPD have broken the deadlock and hammered out a deal that - in principle - would return Merkel as chancellor, according to media reports from Germany.
But... the SPD’s members still have to approve the plan. They’ll vote in the next few weeks.
Intriguingly, it appears that the SPD could get control of the German finance ministry, and the foreign ministry. That could have significant impact on the eurozone’s economic policy -- Germany’s next finance minister might take a less hard-line approach on issues such as debt relief and eurobonds, compared to Wolfgang Schäuble....
Big change in Europe and for the euro area: Wolfgang Schäuble's successor will be a social democrat. SPD also keeps Foreign and Labour ministries. (Health warning: all this is subject to approval by the 463,000 SPD members).
— Henrik Enderlein (@henrikenderlein) February 7, 2018
Rumours say federal ministry of finance & foreign office go to SPD. If confirmed 🇩🇪 EU co-ordination cannot stay as it was. At least on EMU Eurozone CDU and SPD have to speak with one voice (voiceless German vote included). not #DEmodern4EU but interesting experiment #DEinEU
— Bernd 🇪🇺 Hüttemann (@huettemann) February 7, 2018
UK house prices fall again
NEWSFLASH: UK house prices fell in January, according to the latest survey from Halifax bank.
Halifax reports that prices declined by 0.6% in the three months to January, following a 0.8% fall a month earlier.
That takes the annual house price inflation rate down to 2.2%, compared with 2.7% in December.
Halifax also found that fewer new homes are coming onto the market:
New instructions to sell continued to deteriorate at the headline level and have now fallen for 23 consecutive months – the worst sequence for almost eight years.
Here’s some instant reaction:
#Halifax reports #UK #house #prices fell further 0.6% m/m in Jan after 0.8% m/m drop in Dec. Annual increase slowed to 2.2% in 3 months to Jan from 2.7% in 3 months to Dec. Contrasts with #Nationwide reporting 0.6% m/m & 3.7% y/y rise in Jan
— Howard Archer (@HowardArcherUK) February 7, 2018
Halifax: "ANNUAL HOUSE PRICE GROWTH SLOWS TO 2.2%" That will unsettle the Bank of England as it meets today #GBP #BoE
— Shaun Richards (@notayesmansecon) February 7, 2018
Analyst: There's more market drama ahead
Today’s rally means European stock markets are bucking a seven-day losing streak.
But that doesn’t mean the turbulence is over. Many of the factors blamed for the sell off -- such as fears of US interest rate hikes -- are still in place.
Konstantinos Anthis of ADS Securities research team explains:
Investors seem to believe that the worst is over and that the sell-off was just a market tantrum that happens a couple of times a year but we tend to believe that there’s more to come.
As discussed above, the key catalysts behind the retreat in the equities markets have to do with the new reality in bond yields, concerns about a tighter Fed policy and doubts over the effectiveness of Trump’s tax reforms.
It was quite a mixed day in Asia, by the end, as the initial optimism from Wall Street faded:
Here’s what’s up across Europe, and what’s not....
Morning EU Movers:
— RANsquawk (@RANsquawk) February 7, 2018
Julius Baer +3.7%
Raiffeisen Bank +2.7%
Rio Tinto +1.5%
ABN AMRO -2.0%
Tesco -1.1%
Sanofi -1.5%
AstraZeneca -0.9%
Updated
Supermarket chain Tesco isn’t joining the rally, though. Its shares are down 1%, after shopworkers launched an equal pay claim that could prove very expensive.
My colleague Sarah Butler has the story:
Tesco is facing a demand for up to £4bn in back pay from thousands of mainly female shopworkers in what could become the UK’s largest ever equal pay claim.
A law firm has launched legal action on behalf of nearly 100 shop assistants who say they earn as much as £3 an hour less than male warehouse workers in similar roles. Up to 200,000 shopfloor staff could be affected by the claim, which could cost Tesco up to £20,000 per worker in back pay over at least six years.
Tesco warehouse staff earn from about £8.50 an hour up to more than £11 an hour while store staff earn about £8 an hour in basic pay, according to the claim. The disparity could mean a full-time distribution worker earning over £5,000 a year more than store-based staff.
The Guardian front page, Wednesday 7 February 2018: Tesco may face £4bn bill over equal pay claim pic.twitter.com/RfyRbVNgPh
— The Guardian (@guardian) February 7, 2018
Markets are rising across Europe, as a degree of calm returns to trading floors.
The Stoxx 600 index is up 0.7% - a modest, rather than spectacular recovery.
Lee Wild, Head of Equity Strategy at interactive investor, says:
Just as markets cannot keep rising forever, they must also stop falling at some point, but it’s still unclear whether we’ve reached a level where buyers see value again.
Futures prices had indicated a much brighter start for global markets, but early gains were wiped out in Asia and Europe looks vulnerable. Volatility is back, and investors had better get used to it.
#breaking The FTSE 100 Index was up 56.61 points to 7,202.73 shortly after the London market opened, as global markets bounced back from steep falls.
— Ben Woods (@Ben_Woods01) February 7, 2018
FTSE 100 jump 60 points, but volatility isn't over
Shares are rising in London at the start of trading.
The FTSE 100 is up 65 points, or 0.9%, to 7205, as investors join the rally that began on Wall Street late last night.
Pest control firm Rentokil is leading the risers, up 4.3%, followed by packaging firm Smurfit Kappa (+3.5%).
It’s only a small rebound, compared to yesterday’s 2.6% tumble.
Mike van Dulken of City firm Accendo Markets says traders can’t decide whether we’re seeing a “technical correction, or the opening sequence for a greater unwind.”
An unwind from a protracted period of historically low volatility, yields, borrowing costs and investor concern, which contributed to high levels of market valuation, passive investing, financial engineering and complacency.
As the last few days have shown us, things are always “different this time”, until of course, they’re not.
Royal Bank of Canada is concerned that the early rally in Asia fizzled out as today wore on.
US equities recovered some ground in yesterday’s session after the previous day’s record losses. The S&P 500 closed up 1.74% having lost over 4% the day before.
The resurgence in volatility saw the VIX index hit an intraday high of over 50, a level not reached since 2015, having barely exceeded 15 for much of last year.
Although Asian stock markets initially opened much higher on the back of the rebound in the US, that performance has faded. For example the Nikkei having been up as much as 3.4% on the day at one point is back to almost flat.
Similarly, futures on US equity indices are sliding with the Dow off around 1% at the time of writing suggesting the sustainability of Tuesday’s rebound in sentiment isn’t assured at this stage.
The agenda: European markets to recover
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
European markets are rebounding this after two days of wild swings, but investors are still nervous.
European stocks are tipped to bounce by at least 1% today, recovering some of Monday and Tuesday’s sharp losses.
That following a surprise late rally on Wall Street last night that saw the Dow jump by 567 points -- its biggest gain since Donald Trump was elected US president.
Over in Asia, Japan’s Nikkei has crept higher over night, but there were further losses in China.
City traders are calling the FTSE 100 up 60 points today. That should please shareholders, until they remember that the blue-chip index shed almost 200 points on Tuesday, hitting a 10-month low.
#FTSE100 Index called to open +60pts at 7200 pic.twitter.com/jBNyyTVTlm
— Mike van Dulken (@Accendo_Mike) February 7, 2018
The other main European markets are expected to recover today as well.
European Opening Calls:#FTSE 7182 +0.57%#DAX 12515 +0.98%#CAC 5222 +1.16%#MIB 22582 +1.05%#IBEX 9913 +1.05%
— IGSquawk (@IGSquawk) February 7, 2018
And worryingly, the futures market is suggesting that US stocks could fall back later today. So, it could be another volatile day....
Here’s the agenda:
- 8.30am GMT: Halifax house price survey
- 1.30pm GMT: New York Federal Reserve chief William Dudley speaks at an event on Banking Culture in New York.
- 3.30pm GMT: The weekly US crude oil inventory figures
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