Share markets in Asia plunged to a 19-month low on Thursday after Wall Street’s worst losses in eight months led to broader risk aversion, a rise in market volatility gauges and concerns over overvalued stock markets in an environment of rapidly rising dollar yields.
Markets in Europe are seen as unlikely to stem the bleeding, with financial spreadbetters expecting London’s FTSE to open 1.4 percent lower at 7,047, Frankfurt’s DAX to open down 1.8 percent at 11,501 and Paris’ CAC to open down 2.1 percent at 5,096. The sell-off, which came as the head of the International Monetary Fund, Christine Lagarde, said stock market valuations have been “extremely high”, erased hundreds of billions of dollars of wealth around the region.
Japan’s Nikkei ended down 3.9 percent its steepest daily drop since March, while the broader TOPIX lost around $207 billion in market value, falling 3.5 percent.
On Wall Street, the S&P500’s sharpest one-day fall since February wiped out around $850 billion of wealth as technology shares tumbled on fears of slowing demand.
The S&P 500 ended Wednesday with a loss of 3.29 percent and the Nasdaq Composite 4.08 percent, while the Dow shed 2.2 percent.
The dollar was already losing ground to both the yen and the euro, as investors favored currencies of countries that boasted large current account surpluses.
The euro was at $1.1550, up from a low of $1.1429 early in the week. The dollar lapsed to 112.17 yen, a telling retreat from last week’s 114.54 peak.
That left the dollar at 95.263 against a basket of currencies. [USD/]In commodity markets, gold struggled to get any safety bid and edged down to $1,192.77.
Oil prices skidded in line with U.S. equity markets, even though energy traders worried about shrinking Iranian supply from U.S. sanctions and kept an eye on Hurricane Michael, which closed some U.S. Gulf of Mexico oil output.
Brent crude fell 1.6 percent to $81.75 a barrel, while U.S. crude dropped 1.5 percent to $72.07.
While the ECB monetary policy meeting minutes and Brexit will be eyed, U.S inflation figures could have a far greater influence this afternoon.
Earlier in the Day:
There were no material stats released through the Asian session this morning, leaving the markets to consider U.S inflationary pressures following the release of wholesale inflation numbers on Wednesday ahead of this afternoon consumer price numbers.
Other pressures continue to include the built-up tensions between the U.S and China and market concerns over what lies ahead for the Italian coalition and the much talked about budget that could get nasty should the coalition’s first budget be rejected.
At the time of writing, the Japanese Yen stood at ¥112.19, up 0.07% for the session, with the Aussie Dollar and Kiwi Dollar finding support. The Kiwi Dollar was up 0.23% to $0.6464, with the Aussie Dollar up 0.14% to $0.7065, the pair having struggled amidst the ongoing geo-political tensions, with gains through the early part of Wednesday reversing as the day progressed off the back of upward momentum in U.S Treasury Yields and risk off sentiment across the global financial markets.
In the equity markets, the cues came from Wednesday’s sell-off in the European and U.S majors, the Nikkei sliding by 3.21%, pressure coming from a rebound in the Yen alongside the rise in geo-political risks, with the ASX200 down 1.71%.
For the CSI300 and Hang Seng, the pair followed in the path of the other majors early on, the Hang Seng opening down 3.05%, with the CSI300 down 3.11% at the time of writing, with the U.S futures showing little hope of a rebound from yesterday’s losses in the early part of the day.
The Day Ahead:
For the EUR, economic data through the day includes finalized September inflation figures out of French and Spain, with the ECB monetary policy meeting minutes also due out later in the day.
Focus will be on the monetary policy minutes, with finalized inflation numbers unlikely to have an impact on the day, barring material deviation from prelim figures.
Of particular interest will be whether Draghi’s post press conference view on inflation was discussed during the ECB gathering and whether there had been any discussion on how to address any acceleration in inflation in the coming months. For the ECB to consider a shift in policy on deposit and interest rates, a more positive view on wage growth would be needed. On the bearish side for the EUR, there could be concern over the ongoing trade war between the U.S and China and the possible effects on the Eurozone economy.
At the time of writing, the EUR was up 0.13% to $1.1535, with budget chatter from Italy and the ECB minutes the key drivers for the EUR.
For the Pound, there are no material stats scheduled for release through the European session, leaving the Pound in the hands of Brexit chatter that has drawn the bulls out of the woods, news of the EU easing its position on the Irish border bringing trade talks into focus, not to mention easing concerns over the EU being unwilling to form an agreement.
Earlier in the Asian session, the UK RICS House Price Balance numbers for September were released, with the headline house price balance falling to -2%, which was worse than a forecasted rise to 2%, a shift in sentiment towards the housing sector coming in the wake of BoE Governor Carney’s dire warnings over the housing sector should Britain stumble out of the EU without a deal. The stats had limited impact on the Pound however, Brexit in focus.
At the time of writing, the Pound was up 0.09% to $1.3208, with Brexit chatter to influence through the day.
Across the Pond, focus will be on September inflation figures and the weekly jobless claims numbers, the key driver through the day expected to be the inflation numbers that are forecasted to be Dollar positive.
The markets have already begun getting edgy over FED policy that has seen Treasury yields spike. A pickup in the annual rate of inflation will see the markets begin taking an even more hawkish stance on policy and the rate path, though one does question whether the FED will be willing to take a more aggressive rate path from current projections.
At the time of writing, the Dollar Spot Index was down 0.10% to 95.416, with today’s inflation figures and chatter from the Oval office needing consideration through the day.
For the Loonie, economic data is limited to August new housing price figures that are unlikely to provide direction for the Loonie, a string of housing sector numbers in the week having left the Loonie in the hands of market risk appetite and direction of crude oil prices that will likely continue through the day.
The Loonie was up 0.05% at C$1.3061 against the U.S Dollar at the time of writing.