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Markets Update, 18 May

 

 

  • Markets hit by Political Unease
  • Stocks in Europe and Asia extend losses
  • Futures point to a flat opening for the S&P 500

 

European and Asian stocks slumped on Thursday following the worst one-day drop in US stocks in 8 months. Futures pointed to a 0.4% opening loss for the S&P 500 and a 0.5% loss for the Dow Jones Industrial Average after Wall Street’s biggest selloff since September interrupted a period of unusual calm in markets.

Continued  uncertainties about President Donald Trump’s political future and its impact on his pro-growth agenda have caused volatility in the financial markets, favoring a return to safe havens assets.

The S&P 500 dropped 1.8 per cent, causing the CBOE Vix index, a measure of implied volatility known as Wall Street’s fear gauge, to surge 46 per cent — though, granted its close at 15.6 was still below its historic average of about 20.

 

There´s been some degree of complacency about the quietness of volatility in markets; The market will revert to much higher volatility and this could be the start of it

 

Markets in Asia ended lower for a second session, while the Stoxx Europe 600 fell another 1% amid declines in banks, miners and auto companies. London’s export-heavy FTSE 100 index shed 1.5% as the British pound climbed above $1.30 for the first time this year.

UK retail sales were the major economic release, and they beat expectations decisively, This sent the Sterling surging above 1.30 for the first time since October.

Brent crude oil fell 1.8% to $51.27 a barrel on Thursday, while Asian equity markets were broadly lower, echoing the selloff in the U.S. on Wednesday.

Japan’s Nikkei Stock Average fell 1.3% as a global flight to haven assets boosted the value of the yen, weighing on the country’s exporters, particularly in the auto sector. Japanese life insurers, which are large holders of U.S. government bonds, were hit by declines in Treasury yields.

Yields on 10-year U.S. Treasurys fell to around 2.193% Thursday from 2.216%, following their biggest daily decline since the week of the U.K. referendum in June.

Trouble mounted for Brazilian President Michel Temer, who was recorded discussing payments to silence testimony by a potential witness in the country’s biggest-ever graft probe. All this sent gauges down in what could be a massive sell off. A Brazilian stock ETF trading in Japan, gave an indication of what to expect: a drop of about -8%.

 

Stocks

  • The Stoxx Europe 600 Index declined 1 percent, heading for the lowest since May 1, as of 7:15 a.m. in New York, after tumbling 1.2 percent on Wednesday for the biggest drop since September.
  • Futures on the S&P 500 fell 0.4 percent after the benchmark gauge slumped 1.8 percent on Wednesday, its worst day since Sept. 9.
  • A Japan-traded ETF tracking Brazil’s Ibovespa Index tumbled 7.5 percent, the most since November, as political crisis returned to the country after last year’s impeachment process.

Currencies

  • The Bloomberg Dollar Spot Index increased 0.2 percent, after dropping 0.5 percent on Wednesday to the lowest level since Nov. 8.
  • South Africa’s rand led declines among emerging-market currencies, slumping 2.3 percent. Mexico’s peso weakened 1.7 percent.
  • The euro fell 0.2 percent to $1.1138, after four straight days of gains. The British pound jumped 0.5 percent to $1.3035 after data showed retail sales rose more than expected in April.

Bonds

  • The yield on 10-year Treasuries dropped three basis points to 2.2 percent, heading for the lowest since April 18.
  • Benchmark yields in France fell four basis points, while German yields lost five basis points.
  • Bonds of state-controlled energy company Petroleo Brasileiro SA dropped by the most in six months amid a political crisis in Brazil. The company’s 800 million euros of notes due in January 2025 led the slump, falling 4.5 cents on the euro to 102 cents, the biggest decline since November.

Commodities

  • Gold gained 0.2 percent to $1,263.15 an ounce, erasing a decline of as much as 0.6%
  • Zinc and nickel led a retreat in industrial metals, dropping 3.2 percent and 2.2 percent, respectively, as political turmoil in the U.S. threatened the outlook for the world’s biggest economy. Copper slumped 2 percent to
  • West Texas crude dropped 1.6 percent to $48.28 a barrel, after jumping 0.8 percent in the previous session.
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