On 08 February, 2018 - Rising bond yields send stocks tumbling

Anne D Picker
Anne D Picker
Econoday9 February 2018

Both the Dow and S&P entered contraction territory.

US markets

US stocks plunged yet again Thursday. A mid-day sell-off accelerated in the final hour of the trading session, driving the Dow Jones industrials into correction territory. Stocks have tumbled from record highs over the past week, as traders grew concerned about inflation and higher interest rates. The Dow sank 4.2 percent and is down more than 10 percent from all-time highs set late January. The S&P closed off 3.8 percent and is also in correction territory while the Nasdaq tumbled 3.9 percent. The retreat had been long awaited by investors as the market climbed steadily to record high after record high with few bumps.

Fears that faster growth and inflation could force central banks to tighten monetary policy more quickly than expected have driven government-bond yields higher. That, in turn, can pressure stock prices as fixed-income interest payments become more attractive than stock dividends. Federal Reserve Bank of Dallas President Robert Kaplan said in an interview with Bloomberg Television that the recent correction in US stocks will have little impact on the broader economy, a sign that the Fed still plans to raise interest rates at least three times in 2018.

Boeing dropped after the Wall Street Journal said the company was in talks to buy aerospace parts maker Woodward. Twitter advanced after it reported revenue and adjusted earnings per share for the fourth quarter. Yum! Brands announced a new partnership with takeout food-ordering company Grubhub to drive incremental sales to KFC and Taco Bell restaurants in the United States. Grubhub shares surged.

Boeing dropped after the Wall Street Journal said the company was in talks to buy aerospace parts maker Woodward. Twitter advanced after it reported revenue and adjusted earnings per share for the fourth quarter. Yum! Brands announced a new partnership with takeout food-ordering company Grubhub to drive incremental sales to KFC and Taco Bell restaurants in the United States. Grubhub shares surged.

European markets

Stocks tumbled in a late selloff Thursday with the new surge of volatility which has alarmed investors this week after a long period of calm. Stocks were weak at the start of trading after US markets declined on Wednesday and continued to slip further after Thursday's weak US opening. The continued rise in bond yields applied further pressure to stocks. The FTSE lost 1.5 percent while the CAC, DAX and SMI tumbled 2.0 percent, 2.6 percent and 2.4 percent respectively.

As expected, the Bank of England monetary policy committee left its monetary policy unchanged. The Bank Rate stayed at the 0.50 percent level to which it was raised back in November while the quantitative easing ceilings for gilts and corporate bonds remained at £435 billion and £10 billion respectively. The vote was a unanimous 9 to 0. In its statement, the MPC still says that any future increases in Bank Rate are expected to be at a gradual pace and to a limited extent. However, minutes of the meeting suggested that policy will need to be tightened somewhat earlier and by a somewhat greater degree over the forecast period than anticipated at the time of the last Quarterly Inflation Report (QIR).

Commerzbank declined even though the bank aims to reinstate a dividend in 2018 after reporting better-than-expect revenue and profit for the fourth quarter. Vinci dropped even though it reported higher full-year 2017 net income and predicted a further rise in profits and revenue this year. Société Générale jumped after the bank delivered a surprise profit in the fourth quarter, beating expectations for a loss. Publicis Groupe advanced after the advertising group delivered fourth-quarter and full-year revenues in line with estimates. Pernod Ricard advanced after it reported a 25 percent increase in its profit for the first half of 2018, reflecting a reduction in financial expenses and positive non-recurring items.

Total gained after its fourth-quarter net profit soared 86 percent from last year thanks to higher oil prices. Thomas Cook tumbled after the travel giant warned of an unpredictable market. Compass Group was higher after it said its outlook for 2018 is positive. The company now expects to be above the middle of its target 4 percent to 6 percent organic growth range for the full year. Zurich Insurance Group was lower in Zurich after its 2017 profit topped forecasts. Swiss Re advanced amid reports that Japan's Softbank is in talks to acquire a stake in the reinsurer. ABB sank after it reported weaker than expected fourth quarter earnings. Credit Suisse also declined along with Novartis, Roche and Nestlé.

Both of Germany’s exports and imports advanced on the month in December. Exports rose 0.3 percent, slower than the 4.1 percent increase seen in November. Imports eased to 1.4 percent from 2.2 percent in November.

Asia Pacific Markets

Asian stocks were mixed Thursday. Investors remained cautious even as Chinese export and import data beat expectations, US bond yields crept up towards four-year highs and Brent crude prices hit a 2018 low on worries over surging US output. The US dollar firmed after Congressional leaders reached a two-year budget deal to raise government spending by almost $300 billion.

The Shanghai Composite declined 1.4 percent to hit a six-month low even though the country's exports grew at a faster-than-expected pace in January. In US dollar terms, exports advanced 11.1 percent on the year in January while imports jumped 36.9 percent from a year ago. Another report from the People's Bank of China revealed that China's foreign exchange reserves grew around $21.5 billion to $3.161 trillion in January, marking the 12th straight month of increase. The Hang Seng, however, increased 0.4 percent.

The Nikkei and Topix advanced 1.1 percent and 0.9 percent respectively. Toyota Motor, Nissan Motor and Honda Motor all gained on the day. SoftBank Group was higher after reports that it is in talks to buy a one-third stake in reinsurer Swiss Re. The Ministry of Finance said that Japan posted a current account surplus of ¥797.2 billion in December, down 28.5 percent from a year earlier. Bank of Japan Governor Haruhiko Kuroda, while declining to discuss future monetary-policy action, renewed his pledge to continue the central bank’s easy policy.

Both the S&P/ASX and All Ordinaries added 0.2 percent. The National Australia Bank advanced after the lender reported a 3.0 percent increase in cash earnings for the first quarter and said it is on track to attain its full-year earnings forecast. BHP Billiton, Rio Tinto and Fortescue Metals Group retreated after copper prices dropped. Santos and Woodside Petroleum declined after Brent crude futures tumbled to a six-week low on concerns over surging US output.

The Kospi was up 0.5 percent after declining for four days thanks to buying by foreign and individual investors.

Looking forward

China posts January consumer and producer price indices. France, Italy and the UK release December industrial production. The UK also releases December merchandise trade. Canada reports January labour force survey.

Global Stock Markets

 

Index

08 Feb 2018

Daily Change

% Change Daily

North America

 

 

 

 

United States

Dow

23860.46

-1032.89

-4.1

 

NASDAQ

6777.16

-274.82

-3.9

 

S&P 500

2581.00

-100.66

-3.8

Canada

S&P/TSX Comp

15065.61

-264.97

-1.7

Europe

 

 

 

 

UK

FTSE 100

7170.69

-108.73

-1.5

France

CAC

5151.68

-104.22

-2.0

Germany

XETRA DAX

12260.29

-330.14

-2.6

Italy

MIB

22466.60

-519.58

-2.3

Spain

Ibex 35

9756.30

-220.60

-2.2

Sweden

OMX Stockholm 30

1519.77

-31.38

-2.0

Switzerland

SMI

8763.11

-211.90

-2.4

Asia/Pacific

 

 

 

 

Australia

All Ordinaries

5995.16

13.62

0.2

Japan

Nikkei 225

21890.86

245.49

1.1

 

Topix

1765.69

15.78

0.9

Hong Kong

Hang Seng

30451.27

128.07

0.4

S. Korea

Kospi

2407.62

11.06

0.5

Singapore

STI

3415.90

32.13

0.9

China

Shanghai Comp

3262.05

-47.21

-1.4

Taiwan

TAIEX

10528.52

-23.02

-0.2

India

Sensex 30

34413.16

330.45

1.0

Data Source — Haver Analytics

 

 

 

Note: All releases are listed in local time.

Econoday Inc. is a US company that provides financial commentary and indicators to industry professionals. All information provided and views expressed are those of Econoday. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Past performance is not a reliable indicator of future results. The value of investments can go down as well as up and investors may not get back the amount invested.