Wall Street holds its nerve after stocks rout eases in Europe

by | February 7, 2018 4:38 pm

“Despite some relief for equities, investors realise we have entered a new phase — henceforth markets will be ultra sensitive to inflation reports of all types, while more analysis will take place about extended positions which might lead to forced selling,” says Andrew Milligan, head of global strategy at Aberdeen Standard Investments.

Nonetheless, technical factors that added to the earlier rout, including algorithmic or model trading and leveraged short volatility products, seem to have calmed down. “After a couple of days when long-term, fundamental investors stood aside, there are some signs of them looking to buy.”
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European bourses are finding support, further easing the dramatic rout that swept across world stock markets, as Wall Street stocks edging higher in opening trade, having ended the previous session with gains.

The S&P 500 is up 0.6 per cent in initial New York trade
The Dow Jones Industrial Average is 0.8 per cent higher
The Europe-wide Stoxx 600 is up 1.6 per cent
London’s FTSE 100 is 1.7 per cent higher
The Xetra Dax in Frankfurt is up 1.4 per cent
Japan’s Topix added 0.4 per cent
The CSI 300 index of major mainland Chinese stocks fell 2.4%

The trading pattern follows sharp selling earlier in the week, which tracked concerns the Federal Reserve could tighten monetary policy more aggressively than anticipated following a surge in US wages.

The Cboe Vix index of implied equity volatility — which briefly spiked above the 50 mark during the global equity sell-off — was down 8 per cent at 21, just above its long-term average of 20.

Wall Street’s S&P 500 fell as much as 2.1 per cent on Tuesday before finally finding a floor and closing 1.7 per cent higher at 2,694. The Dow Jones Industrial Average swung through a near-1,200 point trading range before ending the day 2.3 per cent higher. Futures trade is pointing to losses of 0.4 per cent for the Dow and the S&P 500 at the US open.

The dollar index is up 0.3 per cent at 89.86. The euro is down 0.3 per cent at $1.2340 while the pound is 0.1 per cent weaker at $1.3932 although the Japanese yen is 0.3 per cent stronger at ¥109.20.

The onshore renminbi, which is permitted to trade 2 per cent either side of a daily mid-point set by the People’s Bank of China, was 0.5 per cent stronger against the dollar to Rmb6.2530, its strongest since August 2015. The offshore renminbi was 0.3 per cent stronger at Rmb6.2605.
Fixed income

The yield on the 10-year US Treasury is up 3 basis points at 2.80 per cent, down from a four-year high of 2.885 per cent touched on Monday. Yields rise when prices fall.

The yield on the German 10-year Bund is up 4bp at 0.73 per cent.

International benchmark Brent oil is up 1.2 per cent at $67.64 a barrel while the US marker, West Texas Intermediate, is up 0.7 per cent at $63.80 a barrel.

Gold is flat at $1,324 an ounce after hitting a three-week low on Tuesday.

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