The Bull

Saturday 15

December, 2018 4:07 AM



Wall Street suffers ugly day as fears mount over interest rates

Wall Street suffers ugly day as fears mount over interest rates

Wall Street stocks plummeted Wednesday as worries about surging US interest rates and the impact of trade disputes prompted a broad-based selloff that slashed more than three percent from major indices.

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11.10.2018 08:49 AM

Wall Street stocks plummeted Wednesday as worries about surging US interest rates and the impact of trade disputes prompted a broad-based selloff that slashed more than three percent from major indices.

The rout in US shares came on the heels of substantial losses on European bourses, due in part to tensions between Brussels and Rome over Italian budget plans that have revived fears about the eurozone.

"There are a number of worries for investors right now, from the pace of rising bond yields and the impact on investor sentiment, to Italy's populist coalition playing a game of chicken with the European Commission, stalling Brexit negotiations and the ongoing trade conflict between the US and China," said Craig Erlam, senior market analyst at Oanda trading group.

Many of the biggest US names fell hard, with Apple, Boeing and Facebook all slumping more than four percent and Amazon, Nike and Microsoft dumping more than five percent.

As Hurricane Michael pummeled Florida, Wall Street was battered by storms as well, with the Dow shedding about 830 points, in the biggest fall since February, to close the day at 25,498.74. 

The tech-rich Nasdaq Composite Index plummeted 4.1 percent to finish the session at 7,422.05, its worst fall in percentage terms since the surprise Brexit vote in June 2016.

The White House, which has touted Wall Street records as proof of the success of President Donald Trump's economic program, downplayed Wednesday's losses.

"The fundamentals and future of the US economy remain incredibly strong," press secretary Sarah Sanders said. 

Citing low unemployment and strong business confidence, Sanders said, "President Trump's economic policies are the reasons for these historic successes and they have created a solid base for continued growth."

But analysts were more concerned.

"The selling is not panicking, but it's persistent," Briefing.com analyst Patrick O'Hare said of the proceedings. "It's all about investors rethinking their exposure to stocks."

O'Hare attributed the losses to worries about higher interest rates, but also cited a "broad-scale deterioration in sentiment" as investors realized that the pullback on Wall Street failed to prompt bargain hunting that would stabilized prices, as has been the norm in recent years.

Stocks have been under pressure since the yield on 10-year US Treasury bonds jumped above three percent last week, a sudden move that raised fears of an overheating economy, speeding inflation and more aggressive Federal Reserve interest rate increases.

Last week's jump in yields followed strong US data, but many analysts have been anticipating dynamics in the bond market to change due to expectations that central banks in Europe and Japan will soon phase out bond-buying programs.

"It's shifting the tectonic plates," said Jack Ablin, chief investment officer at Cresset Wealth Advisors. 

He said the rising appeal of bond investments would be challenge for stocks in the foreseeable future as capital moves out of riskier equities.

And while stocks could get a boost from strong corporate earnings, there are concerns the US trade conflicts will start to undermine profits.

European luxury shares slump

The turmoil came a day after the International Monetary Fund slashed its global growth forecast on worries about trade wars and weakness in emerging markets.

Bourses in Paris and Frankfurt both lost more than two percent, while London fell 1.3 percent.

In Europe this week, the closely-watched spread between the rates on 10-year bonds in Italy compared with those offered by Germany, which is a measure of the added risk perceived by investors to holding onto Italian debt, hit the highest level since April 2013.

Markets have been shaken by a row between Brussels and Rome, who are at loggerheads after Italy's populist government passed a purse-busting budget last week to the annoyance of the EU.

Neil Wilson, an analyst with Markets.com, said he detected a "smattering of fear" across markets, with the main drag on equities coming from tech stocks.

Shares in European luxury companies also lost much of their shine as investors feared that any slowdown in global economic growth will translate into dwindling sales for high-end firms. In Paris, shares in Kering fell nearly 10 percent, LVMH over seven percent and Hermes around five percent.

In other markets, oil prices fell on worries that Hurricane Michael will dent demand for gasoline and other petroleum products.

Key figures around 2100 GMT

New York - Dow Jones: DOWN 3.2 percent at 25,598.74 (close)

New York - S&P 500: DOWN 3.3 percent at 2,785.68 (close)

New York - Nasdaq: DOWN 4.1 percent at 7,422.05 (close)

London - FTSE 100: DOWN 1.3 percent at 7,145.74 (close)

Paris - CAC 40: DOWN 2.1 percent at 5,206.22 (close)

Frankfurt - DAX 30: DOWN 2.2 percent at 11,712.50 (close)

EURO STOXX 50: DOWN 1.7 percent at 3,266.90 (close)

Hong Kong - Hang Seng: UP 0.1 percent at 26,193.07 (close)

Shanghai - Composite: UP 0.2 percent at 2,725.84 (close)

Tokyo - Nikkei 225: UP 0.2 percent at 23,506.04 (close)

Euro/dollar: UP at $1.1523 from $1.1491 at 2100 GMT on Tuesday

Pound/dollar: UP at $1.3190 from $1.3143

Dollar/yen: DOWN at 112.35 from 112.96 yen

Oil - Brent Crude: DOWN $1.91 at $83.09 per barrel 

Oil - West Texas Intermediate: DOWN $1.79 at $73.17 per barrel
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