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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

FTSE 100 slides to seven-month low as Wall Street falls – as it happened

Traders works on the floor of the New York Stock Exchange today, as shares take a dive
Traders works on the floor of the New York Stock Exchange today, as shares take a dive Photograph: Brendan Mcdermid/Reuters

And finally, here’s Richard Partington on today’s market action:

Wall Street and European stock markets followed Asian shares lower on Tuesday, as investors around the world took fright at the increasingly fractious global geopolitical outlook.

Investors are growing increasingly worried about a cocktail of risks that could act as a significant drag on the world economy. Potential headwinds include the trade dispute between the US and China, rising US interest rates, the fallout from the death of the Saudi journalist Jamal Khashoggi and the budget dispute between the EU and Italy.

Oliver Jones, a markets economist at the research firm Capital Economics, said: “Worries about problems in the US, and to some extent in the past few days China, have proved contagious.”

Goodnight!

Wall Street closes lower

Despite that late revival, the New York stock exchange has closed in the red. But things aren’t as bad as they looked earlier.

The Dow has closed down 126 points, a drop of 0.5%, which means it clawed back most of its early losses.

But there’s still plenty of anxiety on the trading floors, following the big losses in Asia and Europe today.

The EC’s refusal to accept Italy’s budget led to an unedifying confrontation between European commissioner Pierre Moscovici and an Italian MEP.

My colleague Daniel Boffey has the details:

Pierre Moscovici, the commissioner for economic and financial affairs, said the commission would hold talks with Rome with an open mind. “The opinion adopted today by the commission should come as no surprise to anyone, as the Italian government’s draft budget represents a clear and intentional deviation from the commitments made by Italy last July,” he said.

“However, our door is not closing. We wish to continue our constructive dialogue with the Italian authorities.”

As Moscovici was leaving the press conference, an MEP for the League party, Angelo Ciocca, grabbed the commissioner’s notes and hit them with his shoe. He later tweeted that he had slammed “with a sole made in Italy” a “mountain of lies”.

Moscovici later responded that Ciocca had no respect for his function as a parliamentarian.

Here’s a clip of the incident:

Hello.... The US stock market is continuing to recover from its early lows.

The Dow’s now just 0.2% lower, or 60-odd points, having been 400+ down at the start of trading.

October’s turning into a most volatile month in the markets....

Mike O’Rourke, chief Market strategist at JonesTrading, is also concerned by Caterpillar and 3M’s earnings.

He told Marketwatch:

“Caterpillar citing rising costs shows that the trade war is hitting home. It’s industrials like Caterpillar that struggle when you’re at a cyclical top.”

Why Caterpillar spooked Wall Street

Specialist Glenn Carell works at his post on the floor of the New York Stock Exchange today
Specialist Glenn Carell works at his post on the floor of the New York Stock Exchange today Photograph: Richard Drew/AP

Back in New York, shares are climbing off their lowest points... but they’re still in the red.

The Dow is currently 273 points lower at 25,038, down 1%. The S&P 500 and the Nasdaq are both 1.2% lower.

Caterpillar (-7%) and 3M i(-4.5%) are both dragging the Dow down, following their results and guidance.

Fiona Cincotta of City Index says Caterpillar’s warning of higher costs have shown the perils of America’s steel tariffs and the trade war with China.

These figures bring home loud and clear the ramification of the brewing trade war and come at a time when traders are starting to realise that the chances of a US – Sino trade deal being achieved are diminishing. This US – Sino trade spat is here to stay and that is frightening for the outlook of companies.

Costs are increasing and fears that tighter trade conditions will slow global growth is making even the most level-headed trader nervous. When Caterpillar, a bellwether for economic activity starts to struggle, the smart money is seeing that as a signal to sell out of riskier assets.

FTSE HITS SEVEN-MONTH CLOSING LOW

Britain’s blue-chip stock index has been skittled to its lowest level since March, amid another jittery day in the markets.

The FTSE 100 has closed down 87 points, or 1.25%, at 6,955, a seven-month closing low.

There are losses across Europe too, as the row between the EC and Rome over its 2019 budget intensifies.

Italy’s FTSE MIB fell almost 0.9%, the French CAC lost 1.7% and the DAX shipped 2.1%.

Worries over the US-China trade war hurt the markets (following Caterpiller’s warning of rising prices), while the Khashoggi murder also fuelled geopolitical worries.

Brexit isn’t exactly helping the mood either, with investor confidence weak and factory orders down (as covered this morning).

Day One of the Saudi Future Investment Initiative has been roundly overshadowed by the latest developments in the murder of Jamal Khashoggi.

One attendee has got in touch with some observations:

1. Apparently there are 3,000 attendees. I was advised that the original number was 3,500, so it seems 500 chose not to turn up. The event is taking place in the massive convention centre alongside the Ritz Carlton. Hotel.

2. Interesting to note that the first comment at the opening was drawing focus on the Kashoggi affair. The speaker articulated the fact that the “terrible event that happened” is clearly “not in our Saudi DNA or the way we are. We decry what has happened and also want to thank the attendees that have come to Riyadh for the F.I.I. From abroad - your presence here is welcome and most appreciated”. This overt recognition and expression of Saudi contrition and reinforcing the fact that the Saudi government is clearly distancing itself from the events in Istanbul.

3. Very strong police and security presence in place and in view across the city and a clear “sanitized zone” established around the venue and certainly pertaining to access into and within the convention venue.

4. It seems, when looking around the vast auditorium that the majority of the audience are Saudis and people from the Middle East.

Here’s our latest on the situation:

Wall Street faces worst October in years

October has been a bad month for equities, points out Neil Wilson of Markets.com.

“US equity markets turned sharply lower as investors turned chicken to the tune of some very risk-off mood music. However with earnings growth still very strong the valuations may start to look very attractive. US markets opened down around 2%, dipping to three months lows as they followed the selloff in Europe this morning which has shown no signs of abating.

It of course early in the US session to make great pronouncements and these prices are moving a lot but the general tone is not good.

October is turning out to be another bad one: The S&P500 is on course for worst month since Sep 2011, while Nasdaq set for its worst since 2008, the Dow its shakiest since Aug 2015.

The sell-off on Wall Street is accelerating. The Nasdaq is now down 2.5%, meaning it could slide into correction territory.

The Dow has been lurching around too, dragged down by Caterpillar (which has tumbled by almost 10% today).

Harley hit by tariffs

Harley Motorcycles.

Back in the US, motorbike manufacturer Harley-Davidson has reported a slump in sales to American consumers -- just months after Donald Trump pushed for a boycott.

Retail sales in the United States fell 13.3% year-on-year in the last quarter, Harley said.

Back in August, the US president blasted Harley for saying it would move some production overseas.

Harley is being hit hard by the tit-for-tat tariffs imposed between the US and China, and the EU. This is pushing up import costs, and making motorbikes made in America less competitive.

Chief Financial Officer John Olin told shareholders that the bill would run to over $40m

“Our expectations for the impact of recently enacted tariffs includes incremental costs of approximately $15 million to $20 million for steel and aluminum and approximately $25 million for EU tariffs.

Additionally, China increased its tariffs volume on foreign motorcycles produced in the United States by 25 percentage points and the U.S. has increased tariffs on certain products imported from China. We believe this will increase our 2018 cost by approximately $3 million. In total we now expect to incur approximately $43 million to $48 million of increased costs related to the tariffs during 2018.”

Italy: There's no plan B

Italian PM Giuseppe Conte
Italian PM Giuseppe Conte Photograph: Bloomberg TV

The Italian government has hit back, warning that it will not change its 2019 budget despite the EC’s demand for a rewrite.

Prime minister Giuseppe Conte has told Bloomberg that his government could tweak its fiscal plans, but not aim for a smaller deficit.

Conte said he “cannot accept” dropping some of Italy’s spending plans, warning that.

“There isn’t any B plan.

I said that the deficit at 2.4 percent of GDP is the cap. I can say this will be our cap.”

Italy is planning to boost its spending next year to meet the election pledges made by its two coalition partners, the far-right anti-immigrants League party, and the anti-establishment Five Star Movement.

Promises such as tax cuts, a universal basic income and pension reforms will cost around €17bn (£15bn). That creates a larger structural deficit, which is the EC’s concern, but Rome argues it will also spur growth.

If Italy doesn’t revise its budget, then the EC could launch an “Excessive Deficit Procedure” against it.

That could result in a large fine, and closer scrutiny of Italy’s tax and spending plans. That could also worsen relations between the two sides, potentially alarming the markets or fuelling eurosceptic feelings.

Commissioner Pierre Moscovici hopes that a compromise can be found....

This is why the EC has a problem with Italy’s new tax and spending plans:

EC rejects Italian budget

Newsflash: The European Commission has rejected Italy’s 2019 budget, and demanded a rewrite.

As many analysts had predicted, Brussels has concluded that the Italian tax and spending plans breach EU guidelines.

It is now giving Rome three weeks to submit a revised plan, with a smaller deficit for next year.

This is the first time the Commission has rejected a member state’s budget, since being given the power during the eurozone crisis.

Commission Vice President for the Euro Valdis Dombrovskis told reporters in Brussels that:

“Today, for the first time, the Commission is obliged to request a euro area country to revise its draft budget plan,”

“But we see no alternative than to request the Italian government to do so. We have adopted an opinion giving Italy a maximum of three weeks to provide a revised Draft Budgetary Plan for 2019.

Dombrovskis added that the “clarifications” submitted by Italy yesterday had not addressed the EC’s concerns, adding:

“The Italian Government is openly and consciously going against the commitments it made.

Global stock markets hit one-year low

Boom! Global stock markets have slumped to their lowest level in over a year.

Today’s losses in America, Europe and Asia have dragged the MSCI All-Country World Index to levels last seen in September 2017.

Ken Odeluga, market analyst at City Index, says Caterpillar’s results have added to the swirling cocktail of risks pulling shares down today.

Caterpillar’s third quarter earnings beat forecasts with progress across most end markets. But the tone of the report made clear earnings momentum was not the main story in the quarter.

The impression was compounded by 2018 earnings forecasts remaining untouched, for the first time since two straight quarterly upgrades.

Technology companies and banks are leading today’s sell-off in New York, as October continues to prove a volatile month.

Bank shares
Tech shares

Wall Street drops

Traders works on the floor of the New York Stock Exchange today
Traders works on the floor of the New York Stock Exchange today Photograph: Brendan Mcdermid/Reuters

Ouch! The New York stock exchange has opened sharply lower.

The Dow Jones industrial average fell by 430 points at the start of trading, a drop of 1.7%.

That took the index back down to around 24,890 points -- around 2,000 points less than three weeks ago.

It’s a grotty picture; Caterpillar has tanked by over 7%, after warning shareholders today that price pressures are rising, as tariffs take a bite out of profits.

The S&P 500 has dropped to its lowest level since July.

Here’s our news story about the drop in UK factory orders:

And here’s some cheerier news, as the Harry Potter phenomenon continues to boost Bloomsbury:

A reminder of the big sell-off in Asia overnight:

x

European stock markets are still deep in the red, as traders grimace and anticipate the start of trading in New York.

In London, the FTSE 100 is now down 77 points at 6965, a drop of 1.1%, which would be its lowest closing point in seven months. This won’t help investor confidence to claw its way back from the lows reported earlier.

Europe’s Stoxx 600 is still languishing at a 22-month low, with Germany down 1.8% and Italy losing 1.1%.

Fawad Razaqzada, market analyst at Forex.com, blames renewed anxiety over China - which triggered the selloff in Asia overnight.

Hopes that we may see a Chinese-led recovery have been dashed for the time being. After a strong two-day rally, Chinese stocks fell back sharply overnight [-2.2%]. As a result, the losses for European indices sharply increased at the open this morning while US index futures also fell across the board.

Chinese equities, which had been hit the hardest this year, rebounded at the end of last week and start of this in part because of the Chinese government promising to provide more stimulus to stabilize its economy and offset the impact of US tariffs hurting its exports. In addition, there was some speculation that the US and China were going to put aside their trade spat and come to an agreement of some sort at the G20 meeting in Argentina next month, where US President Donald Trump and Chinese President Xi Jinping were likely to meet.

However, those hopes were dashed when White House economic adviser Larry Kudlow accused China of doing “nothing” to defuse the trade tensions.

Updated

Caterpillar excavator machines at a factory in Gosselies Belgium.
Caterpillar excavator machines at a factory in Gosselies Belgium. Photograph: Eric Vidal/Reuters

Marketwatch says Caterpillar’s prediction of further rising prices (partly thanks to tariffs) has spooked investors:

Though Caterpillar narrowly beat expectations for profit and warnings in the quarter, the outlook for more rising costs spooked investors. Caterpillar’s shares fell 5.9% in premarket trading on Tuesday.

Caterpillar said it would raise prices 1% to 4% world-wide next year on most machines and engines to offset some of the higher costs. Other manufacturers have also said they are passing on higher costs by raising prices.

A Lockheed Martin F-35 aircraft.
A Lockheed Martin F-35 aircraft. Photograph: Axel Schmidt/Reuters

Defence group Lockheed Martin may have bucked the gloom, by posting strong results and hiking its sales forecast for the rest of the year.

Increased demand for its F-35 fighter plane helped to drive Lockheed’s net sales up to $14.3bn in the last quarter, up from $12.3bn a year earlier.

Earnings per share jumped to $5.14, up from $3.32 12 months ago.

Lockheed Martin chairman, president and chief executive Marillyn Hewson says:

Our team achieved another quarter of strong growth leading us to improve our expectations for our full-year financial results.”

Hold onto your hats! The Dow is now expected to tumble by 400 points, or more than 1.5%, at the open - partly due to those results from Caterpillar and 3M.

In another blow, US conglomerate 3M has also posted underwhelming results.

The group’s industrial sales were flat in the last quarter, while healthcare sales fell 2.8%, consumer sales fell 3.4% and electronics and energy dropped by 4.8%. However, total sales grew 7.0 percent in Safety and Graphics.

3M also trimmed its earnings outlook for 2018. Shares have slumped by over 7%.

Caterpillar’s results also show that consumers are paying the price of Donald Trump’s trade disputes:

Caterpillar shares slump after results

NEWSFLASH: Caterpillar, the construction equipment giant, has just reported results -- and Wall Street isn’t happy.

Caterpillar has warned that it is facing “supply chain challenges across the industry”.

Raw material costs have also jumped, it warns, partly due to increased steel prices and other tariffs introduced since Donald Trump was elected.

It says:

Manufacturing costs were higher due to increased material and freight costs.

Material costs were higher primarily due to increases in steel prices and tariffs. Freight costs were unfavorable primarily due to supply chain inefficiencies as the industry continues to respond to strong global demand.

Caterpillar says that recently imposed tariffs cost it around $40m in the last quarter, a concrete sign that the trade war is hurting US companies.

On the upside, Caterpillar narrowly beat profit expectations in the last three months. It made $2.88 per share, ahead of forecasts of $2.72, while revenues jumped by 18% year-on-year to $13.5bn.

Caterpillar CEO Jim Umpleby says:

“This was the best third-quarter profit per share in our company’s history.

Our global team continues to do excellent work focusing on our customers’ success and executing our strategy for profitable growth.”

Shares have fallen by over 6% in pre-market trading.

UK factories suffer falling orders as optimism shrinks

In further gloomy news, UK manufacturers have reported the sharp fall in orders since the EU referendum.

The CBI, which represents Britain’s bosses, reports that new orders at UK factories fell at the fastest pace in three years in the last quarter.

Firms are also more pessimistic about business prospect, particularly about their chances of selling goods abroad.

Rain Newton-Smith, chief economist at the CBI, says:

“This is a sobering set of figures demanding immediate action at home and abroad.

“Planned investment is being scaled back in the face of deepening Brexit uncertainty, so it’s vital that the Chancellor incentivises manufacturers to spend in areas that will help them become more productive.

Using the upcoming Budget to increase the Annual Investment Allowance, alongside a wider review, could help the UK become more competitive with its global peers.

Here’s more details from the CBI’s industrial trends report:

  • 10% of firms said they were more optimistic about the general business situation than three months ago and 25% were less optimistic, giving a rounded balance of -16%, the fastest decline since July 2016. Optimism about export prospects for the year ahead deteriorated at the fastest pace since 2012 (-15% down from -2% in July).
  • 27% of firms said the volume of output over the past three months was up and 14% said it was down, giving a balance of +13%, up from +11% in the quarter to September.
  • 21% of businesses reported an increase in new orders, and 28% reported a decrease, giving a rounded balance of -6%, the weakest balance since October 2015. Domestic orders (-10%) and export orders both fell (-8%), a weaker reading than in the previous quarter (+8% and +21% respectively).

Updated

Investor morale slumps as Brexit approaches

No wonder the FTSE 100 is falling.

UK investor morale has hit its lowest level in at least 23 years, according to financial services firm Hargreaves Lansdown.

Its Investor Confidence Index has fallen to 53 this month, from 58 in October - its lowest level since it began in 1993. It has averaged 92 over the last decade, but just 69 over the last 12 months.

Brexit is the top issue worrying investors, while wider global instability is another concern pushing the index down:

Hargreaves Lansdown index of investor confidence

If this index is right, it means the City is more downbeat than during the 2008 financial crisis.

Laith Khalaf, senior analyst at Hargreaves Lansdown, says the constant drip-feed of Brexit news has drenched investors in gloom:

‘Investors are in grim mood, as time is running out on Brexit negotiations with little progress on show. Sentiment was dented by the financial crisis, but not to the extent we are seeing today.

That’s perhaps because the crisis unfolded in an unscheduled fashion, while the timeline on the UK’s withdrawal from the EU is there for all to see. A looming early Budget and a stormy October on the markets will do little to settle nerves.

These are challenging times for investors who are faced with a significant known unknown in the form of Brexit. In such circumstances, it’s worth falling back on the basics of investing. That means taking a long term perspective, keeping diversified, and drip feeding money into the markets to take advantage of any dips.’

Over in Ankara, Turkey’s president has told its parliament that the murder of Jamal Khashoggi was a premeditated and meticulously planned political assassination.

Recep Tayyip Erdoğan vowed to pursue the investigation into Khashoggi’s death, calling on Riyadh to hand over those responsible. Here’s a link to our liveblog.

Importantly, Erdoğan appeared to absolve the Saudi leader while not mentioning crown prince Mohammad Bin Salman, saying:

“I do not doubt the sincerity of King Salman. That being said, independent investigation needs to be carried out. This is a political killing”

But Erdoğan did not release any significant new details about the killing. So the Saudi stock market has shaken off its early slump, and is now up on the day.

Here are the best and worst performers on the FTSE 100 today, as the index wallows at a seven-month low.

Top and bottom shares on the FTSE 100 today

FTSE 100 hits seven-month low

The London Stock Exchange in the City of London.
The London Stock Exchange in the City of London. Photograph: Tolga Akmen/AFP/Getty Images

Newsflash: Britain’s FTSE 100 has slid to a new seven-month low, as world stock markets extend today’s losses.

The Footsie is now down 82 points at 6,959, its lowest level since the end of March this year.

The smaller FTSE 250, which contains medium-sized companies, has slumped by 1.8% or 350 points..

The slump is being led by technology stocks, miners, energy firms and industrial companies.

Connor Campbell of SpreadEx blames a “poisonous brewing cauldron of geopolitical and economic issues” [which sounds even scarier than this morning’s ‘thick blanket of risk’]

Ingredients bobbing in the cauldron include....

The unresolved US-China trade war (and fears about the latter’s economy), the US withdrawal from the INF Treaty, the Khasohoggi-related friction between the West and Saudi Arabia, Brexit (all of it, but specifically the rising chances of a no deal divorce), and, perhaps most pertinent to Tuesday, the ongoing EU-Italy budget dispute.

A calamitous cavalcade of market concerns, of such seriousness that it is a surprise the global indices ever manage to edge into the green.

The futures market is indicating a bad start on Wall Street later today. The Dow is now expected to drop by over 1%.

Dyson to build electric car in Singapore

Sir James Dyson.
Sir James Dyson. Photograph: Heathcliff O'Malley/PA

Newsflash: Britain’s technology company Dyson has decided to build its first electric car in Singapore.

The company has chosen Singapore over the UK, as it prepares to get the vehicle on the road in 2021.
The electric car is being designed and tested at Hullavington Airfield in Wiltshire, in western England, but will be manufactured almost 7,000 miles away.

Dyson says it chose Singapore due to the “international nature” of its operations. It already employs around 1,100 people in Singapore, where it makes electric motors.

Jim Rowan, CEO of Dyson says:

Our existing footprint and team in Singapore, combined with the nation’s significant advanced manufacturing expertise, made it a frontrunner.

Singapore also offers access to high-growth markets as well as an extensive supply chain and a highly skilled workforce.

Singapore has a comparatively high cost base, but also great technology expertise and focus. It is therefore the right place to make high quality technology loaded machines, and the right place to make our electric vehicle.

Fifteen years ago, Dyson was criticised for moving washing machines production from Wiltshire to Malaysia.

Today’s decision feels like another blow to UK manufacturing. Dyson, though, points out that its total UK headcount has increased by 2.5 times over the last five years to 4,800. It is currently spending £200m on new buildings and testing facilities at Hullavington.

In a letter to staff, Rowan says:

Dyson is truly global in its development, delivery and realisation of technology. This decision is good news for the exceptional teams we have in both the UK and Singapore.

Updated

Saudi Arabia still expects to sign tens of billions of dollar of deals at its investment conference, despite those high-profile withdrawals following Jamal Khashoggi’s death.

Reuters explains:

Saudi Arabia brushed off an outcry over the killing of journalist Jamal Khashoggi and went ahead on Tuesday with an investment conference boycotted by Western political figures, leading international bankers and company executives.

Speaking at the opening session, prominent Saudi businesswoman Lubna Olayan said the killing of the Washington Post columnist was “alien to our culture” and voiced confidence that the kingdom will “emerge stronger”.

Saudi Arabia, the world’s largest oil exporter, is expected to sign deals worth more than $50 billion in the oil, gas, industries and infrastructure sectors on the opening day with companies including Trafigura, Total, Hyundai, Norinco, Schlumberger, Halliburton and Baker Hughes.

Hundreds of bankers and company executives joined officials at a palatial Riyadh hotel for the Future Investment Initiative, an annual event designed to help attract billions of dollars of foreign capital as part of reforms to end Saudi dependence on oil exports.

We’re live-blogging president Erdoğan’s speech on Jamal Khashoggi’s death, here:

WSJ reporter Rory Jones says the Saudi investment conference is underway - despite scores of big names pulling out.

My colleague Rob Davies points out that a string of big names have resisted the chance to mix with crown prince MbS:

The high-profile pull-outs from the FII include JP Morgan’s Jamie Dimon, the head of the IMF, Christine Lagarde, Glencore chairman Tony Hayward and many more – even Uber’s boss, Dara Khosrowshahi, despite the PIF’s $3.5bn investment in his company. Separately, Richard Branson has suspended the Gulf state’s $1bn investment in his space project, Virgin Galactic.

Rarely have so many business leaders been seen running in the same direction, in this case away from Saudi Arabia at speed.

All of this deals considerable damage to the public profile of a man who was meant to be the standard-bearer for reform and modernisation. When MBS was in California on his tour, he hired out most of the Four Seasons hotel in Beverly Hills, enjoying lunches with Rupert Murdoch, rubbing shoulders in Silicon Valley with the likes of Facebook boss Mark Zuckerberg and schmoozing film stars.

Plenty of other executives have shown up, though:

Updated

In another blow to Saudi Arabia, Japanese billionaire Masayoshi Son has abandoned plans to speak at its Future Investment Initiative (FII), which started today.

Michael Amon of the Wall Street Journal reports that Son may still be present, but he won’t be on the stage.

Saudi Arabia’s stock market has also dropped in early trading, down 1.2%.

Traders will be worrying about Riyadh growing isolation following Jamal Khashoggi’s murder, and the prospect of Turkey releasing the “naked truth” about the killing later today.

Yesterday Donald Trump said he wasn’t happy with the response from Saudi Arabia, telling reporters:

“I am not satisfied with what I’ve heard.

We’re going to get to the bottom of it.”

Trump’s Treasury secretary, Stephen Mnuchin, has cancelled his appearance at Saudi Arabia’s investment conference - but he did met with crown prince Mohammed bin Salman yesterday.

MBS - who had billed himself as a social and economic reformer - had built close ties with Washington, particularly with Trump’s son-in-law, Jared Kushner.

Now, though, he facing intense pressure over the Khashoggi case, with many analysts concluding that he authorised the killing. Several of his close aides have been arrested or dismissed.

Mnuchin’s spokesman, Tony Sayegh, has tweeted about the meeting:

Mike van Dulken of Accendo Markets points out that the US stock market fell yesterday, helping to trigger today’s losses in Asia and now Europe.

The negative opens come after Asia’s rally cooled, retracing Monday’s jump amid fresh fears about global trade, geopolitical tensions and the US midterm elections.

Wall Street added to downbeat sentiment with banks and financials leading the slide as worries mount over the strength of earnings from the remainder of corporates set to report.

European stocks in early trading
European stocks in early trading today Photograph: Thomson Reuters

European markets hit 22-month lows

Boom! As feared, European stock markets have slumped to their lowest point in almost two years.

Germany’s DAX dropped 1.35% in early trading, France’s CAC and Spain’s IBEX both lost 1%, and Italy has shed 0.8%.

This has hauled the Euro Stoxx 600 index down to its lowest point since December 2016.

European stock markets in early trading
European stock markets in early trading Photograph: Bloomberg TV

Naeem Aslam of Think Markets fears it will be a tough day, possibly dominated by worries about Italy.

Geopolitical tensions, Italian budget woes and the ongoing standoff between the European Commission and Italy are making investors nervous. Given that there is no solution about the trade war between the US and China stand is making things a bit more arduous today.

We need to have a solution to the Italian budget. Investors are going to keep a close eye on the European Commission’s decision today about the Italian budget. The commission may end up doing something which is unprecedented- it may ask Italy to revise and resubmit its budget. It is widely expected that the commission is going to have a negative opinion about the budget, but the question is if Italy will be ready to comply with the request?

The Italian banking sector could be the primary trade here because if the Italian bond spread touched the 400 basis points, it is going to create a lot of trouble for the sector. The bond spread has already touched a five-year high of 341 basis points on Friday.

FTSE falls back through 7,000 points

Ouch. Britain’s blue-chip stock index has fallen close to an eight-month low at the start of trading.

The FTSE 100 is down 51 points, or 0.8%, at 6991, close to its lowest level since April

The FTSE 100 over the last 12 months
The FTSE 100 over the last 12 months Photograph: Reuters

Today’s selloff has pushed stocks across Asia to the brink of a bear market (more than 20 percent off their recent highs.

MSCI Asia Pacific Index has dropped to its lowest since May 2017, with losses across the region.

Bloomberg has the details:

Among the steepest decreases were in Japan, Hong Kong and China, where shares had had the biggest jump in more than two years Monday.

Global equities as measured by the MSCI World Index face their worst month since August 2015. S&P 500 Index futures declined 1% and Euro Stoxx 50 contracts opened more than 1% lower, indicating the rout will spread to U.S. and European markets. The yen gained and gold ticked higher.

Asian-Pacific stocks

The agenda: Markets gripped in a 'thick blanket of risks'

A currency trader watches the computer monitors near the screens the foreign exchange rates at the foreign exchange dealing room in Seoul, South Korea.
A currency trader watches the computer monitors near the screens the foreign exchange rates at the foreign exchange dealing room in Seoul, South Korea. Photograph: Lee Jin-man/AP

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Pessimism is gripping the global markets this morning, as investors fret about a clutch of economic and geopolitical issues.

The budget row between Italy and the EU, Brexit, the brutal killing of Saudi critic Jamal Khashoggi, and America’s withdrawal from the Intermediate-Range Nuclear Forces nuclear treaty with Russia are all creating angst on the trading floors today.

The lack of progress in the US-China trade dispute isn’t helping either.

Asian markets have already been hit, with Japan’s Topix index sliding by 2.6% and Hong Kong losing 3%. China, which surged by over 4% yesterday on hopes of a government stimulus, has handed back half those gains today.

Markets remain shrouded in “a thick blanket of risk today” as investors fear shares could take a tumble, says Stephen Innes, head of Asia-Pacific trading for foreign exchange firm OANDA.

The US dollar outperformed on Monday on the back of Italy and Brexit risk while the mere utterance of a protracted equity correction remains a highly sensitive topic that investors fear could morph from a wall of worry into a towering wall of pain.

Risk aversion continues to permeate every pocket of the markets whether triggered by President Trump’s latest tweets on immigration or the blustery headwinds from Riyadh to Rome; markets remain shrouded in a thick blanket of risk.

European market are expected to take a jolt when trading begins shortly.

Traders will be watching to see if Brussels orders Rome to rewrite its 2019 budget, which currently contains a deficit target of 2.4% of GDP.

Turkish president Recep Tayyip Erdoğan is due to release more details about Khashoggi’s death in the Saudi consulate at Istanbul, in a speech later today.

With international condemnation mounting, Saudi have now called the killing a “tremendous mistake” and launched an investigation.

Riyadh is also pushing on with a major investment summit, starting today, but many business leaders have already pulled out.

IG predict that the FTSE 100 will drop close to a seven-month low, while European markets could hit levels last seen in late 2016.

The agenda

  • 11am BST: CBI Industrial trends survey for October
  • 11.30am BST: Bank of England chief economist Andy Haldane speaks at the launch of the OECD ‘New Approaches to Economic Challenges Lab’ seminar

Updated

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