Stock market drop spreads, Wall Street set to fall again

Marco Green
October 12, 2018

MSCI's broadest index of Asia-Pacific shares outside Japan.MIAPJ0000PUS rose 0.2 percent after the opening of the South Korea and Australian markets, a day after it fell 3.6 percent to hit 1-and-a-1/2 year low. That will raise the cost of corporate borrowing and could drag on economic growth.

Investors are wary of possible further USA interest rate hikes, which will raise the cost of corporate borrowing and weigh on economic growth.

On Wednesday, U.S. President Donald Trump said the Federal Reserve "is making a mistake" with its campaign of rate increases.

Stephen Innes of OANDA said that Trump's comments have unsettled traders and put pressure on the dollar. "I think the Fed has gone insane".

European shares hit their lowest in more than 20 months on Thursday following a rout on Wall Street as jitters over rising U.S. Treasury yields and signs of slowing global growth sparked a broad selloff of risky assets.

Tokyo's Nikkei 225 gave up 3.9 percent to 22,590.86 and the Shanghai Composite lost 5.6 percent to 2,573.11.

Brent crude futures LCOc1 fell $2.83 on Thursday to settle at $80.26 a barrel, a 3.4 percent loss, after hitting a low of $79.80, the weakest since September 24. Australia's S&P/ASX 200 slipped 2.4 per cent to 5,906.00.

U.S. stock futures rebounded 0.6 percent in early Asia on Friday, in part helped by media report that the U.S. Treasury Department will not call China a currency manipulator in an upcoming report.

Most sectors in Europe were trading in the red, with tech stocks bearing the brunt of early morning selling pressure after the big US technology stocks that have been the driving force behind a multi-year bull market posted heavy losses overnight.

Shares in Chinese smartphone maker Xiaomi dropped 8.9pc and fellow Chinese technology business Tencent saw a drop of 7.4pc.

Wall Street extended its slide into a sixth session and a global equity index fell to a 1-year low on Thursday as investors feared an escalating US trade war with China and risks from a recent climb in interest rates.

"Equity markets are locked in a sharp sell-off, with concern around how far yields will rise, warnings from the IMF (International Monetary Fund) about financial stability risks and continued trade tension all driving uncertainty", summed up analysts at ANZ. The Dow Jones Industrial Average suffered its worst loss in eight months, falling 3.1 % to 25,598.74. The Nasdaq composite, which has a large contingent of technology stocks, was 4.1 percent lower at 7,422.05.

The S&P 500 index sank 3.3 percent to 2,785.68.

The Russell 2000 index of smaller-company stocks shed 2.9%, to 1,575.41.

Still, sentiment remains shaky with the Cboe Volatility index.VIX rising to 24.98, its highest close since February 12, a day after the S&P 500 fell more than 3 percent.

Shares in Taiwan Semiconductor Manufacturing, which supplies chips to Apple and other firms, dropped 6.2pc.

USA officials have accused China of meddling in its midterm elections and stealing trade secrets from its companies through spies.

Francis Tan, an investment strategist at UOB Private Bank, believes that the markets will pick up in the USA session.

"The valuation of USA stocks, especially tech stocks, is still pretty high and there could be some profit taking actions now", Mr Tan explained. The dollar fell back to 112.10 yen, a telling retreat from last week's 114.54 peak.

Oil futures fell. USA crude gave up 1.27 dollars to 71.90 dollars a barrel.

Euro zone third-quarter earnings are expected to rise 12 percent, almost half the 21 percent growth rate expected for the United States, according to Refinitiv IBES data. The contract settled at 73.17 dollars in NY. Brent crude, the global standard, dropped 76 cents to $82.33 a barrel.

Other reports by Click Lancashire

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