Global markets plunged Thursday, continuing steep losses seen in the previous session, as investors worry about rapidly rising interest rates and an expected slowdown in global growth.
Overnight Dow Jones industrial average futures were down by 189 points as of 2:52 a.m. ET. Futures implied the Dow will open Thursday down by 280 points. This after stocks sank Wednesdaywith the Dow plunging more than 800 points in its worst drop since February.
The VIX (the CBOE Volatility Index), which is seen as a fear gauge for the market, hit a new six-month high of 24.1 points on Thursday morning.
Around the world, stocks have tumbled on the back of concerns surrounding global economic growth and rising interest rates. The International Monetary Fund warned earlier this week that simmering trade tensions, such as those between the U.S. and China, could lead to a “sudden deterioration in risk sentiment, triggering a broad-based correction in global capital markets and a sharp tightening of global financial conditions.”
Meanwhile, U.S. Treasury yields have this week climbed to multi-year highs. Traditionally a sharp rise in bond yields — the cost of borrowing — is seen as negative for major cooperates and their stock prices. President Donald Trump on Wednesday once again criticized the U.S. Federal Reserve, calling the central bank “crazy” for its insistence on hiking rates. Trump also commented on the plunge in markets, calling it a “correction that we’ve been waiting for for a long time.”
Tokyo tumbles 4%
Asia markets fell sharply on Thursday, with the stock indexes in Shanghai, Shenzhen and Tokyo all tumbling by around 4 or 5 percent. The Shanghai composite saw its worst session since February 2016, according to data from analytics company Wind. In the Greater China region, the Hang Seng index slumped 3 percent.
In Taiwan, the tech-heavy Taiex dropped by 6.31 percent to close at 9,806.11, with shares of lens maker and Apple supplier Largan Precision plunging 9.89 percent. Over in South Korea, the Kospicontinued the general trend for the day by tumbling 4.14 percent to close at 2,136.31.
In Europe, stocks were also sharply lower Thursday morning, with the Euro Stoxx 600 Index hitting its lowest level in more than 20 months. Technology stocks led the losses, down 3.2 percent, after a sharp sell-off for the same sector on Wall Street Wednesday.
Flight to safety
Fixed income saw some buying in a traditional “safe-haven” play for investors. The yield on the German government bond dropped six basis points on Thursday morning, with yields having an inverse relationship to prices. Italian bonds didn’t follow suit, however, with political problems in the country still weighting on sentiment.
Bilal Hafeez, the chief economist at Japanese bank Nomura, contemplated what could stop this recent sell-off in a new research note Thursday morning.
“The Fed could provide some comfort to markets. They could acknowledge the deterioration in financial conditions and soften their hawkish tone. The Fed’s recent rhetoric suggests this is unlikely, but a combination of the scale of the moves and even President Trump’s vocal criticism’s may influence them,” he said.
He added that there could also be a de-escalation in the the U.S.-China trade skirmish, or major corporates could return to the market and start buying back their own shares — something that has boosted equities in recent years.
“We are currently in the ‘black-out’ period for U.S. corporate stock buybacks ahead of earnings seasons. Remember, one of the biggest buyers of U.S. stocks since 2009 have been corporates themselves. With earnings season starting this Friday, we will see a return of buybacks over the next month or so,” he said.