European and Asian stocks fell sharply Thursday, taking a cue from the previous day’s Wall Street rout. U.S. stocks saw a second day of selling, but losses were moderate.
The broad market selloff that extended into Asia came after investors got spooked by rising bond yields and the prospect of U.S. interest rates heading higher.
How are major benchmarks faring?
U.S. stock-index futures fell sharply overnight but pared losses ahead of the open after inflation data. The S&P 500 and Dow Jones Industrial Average were both down around 0.5%, while the Nasdaq Composite declined 0.6%.
See: Why the stock market tumbled Wednesday, ushering in its worst start to a quarter in about 2 years
In a shocking day for investors Wednesday, the Dow Jones Industrial Average DJIA, +0.16% skidded 831.83 points, or 3.2%, to 25,598.74, its worst one-day drop since February. The S&P 500 index SPX, +0.16% lost 94.66 points, or 3.3%, to 2,785.68 for a five-straight-session slide and the longest losing streak since November 2016. The technology sector slid 4.8%, the steepest percentage drop since August 2011.
Also read: These stocks in the Dow Jones Industrial Average, S&P 500 and Nasdaq declined the most
The Nasdaq Composite Index COMP, +0.64% fell 315.97 points, or 4.1%, to 7,422.05, its biggest decline of 2018.
How are global markets trading?
European equities fell sharply. The pan-European Stoxx 600 index SXXP, -1.29% fell 1.4% to 361.85. The U.K. FTSE 100 UKX, -1.53% dropped 1.5%, while France’s CAC 40 stock index PX1, -1.16% shed 1.3% and Germany’s DAX DAX, -0.65% lost 0.8%.
Asian markets picked up the baton from Wall Street, with Japan’s Nikkei NIK, -3.89% tumbling nearly 4% and the Shanghai Composite Index SHCOMP, -5.22% off more than 5%. Taiwan stocks fared even worse, with the Y9999, -6.31% down 5.7%, putting it at its lowest levels since May 2017.
Read: Nikkei drops about 4% as Asian markets follow Wall Street’s plunge
Across other assets, West Texas Intermediate crude oil prices CLX8, -1.72% slumped nearly 2%, while gold GCZ8, +1.54% was up 1.4% to $1,210.50 an ounce.
The ICE U.S. dollar index DXY, -0.29% fell 0.3%, with Japanese yen USDJPY, +0.21% strengthening. The yen is often seen as a haven in times of financial and economic uncertainty. The euro EURUSD, +0.3299% and British pound GBPUSD, +0.1971% were also stronger against the dollar, following on from strength in those two rival currencies on Wednesday.
What’s driving the market?
In part, analysts have blamed a rise in long-dated Treasury yields. The yield on the 10-year Treasury note TMUBMUSD10Y, +0.48% hit a more-than-seven year high above 3.26% early Tuesday. Yields and debt prices move in opposite directions.
A rise in yields raises borrowing costs for corporations and investors, and has caused investors to take another look at equity valuations, which some have been saying are far too lofty. Equities also lose their allure when stacked up against higher rates for risk-free bonds. However, rising yields are also seen as a reflection of a strong economy, one that has been supported by a number of strong economic data points.
Haven-related buying appeared to kick in as equities tumbled, however, pulling yields back down. The 10-year yield was off 5 basis points early Thursday to 3.17%.
U.S. President Donald Trump, who has persistently criticized the Federal Reserve for the three in-interest rate hikes it has made this year, doubled down on that view in a Wednesday telephone interview on Fox News, saying the Fed “is going wild.” That was after he made similar comments at rally in Erie, Pa.
Treasury Secretary Steven Mnuchin said it was no surprise to see “somewhat of a correction,” for stocks, but that economic fundamentals remain “extremely strong,” in comments to Bloomberg News at an International Monetary Fund/World Bank meeting in Bali.
Investors are also gearing up for the start of the third-quarter earnings season, which unofficially begins Friday with results from major financial institutions
What were analysts saying?
“Investors are booking profits and liquidating positions whilst they take a moment to think where to go from here. The timing of the sell off just days before U.S. earning season unofficially kicks off on Friday is more than a coincidence,” said Jasper Lawler, head of research at London Capital Group.
“Whilst blowout earnings are expected once again, fears are growing over the forward guidance firms are going to give. Market headwinds such as higher interest rates, higher energy prices, dollar strength and tariffs are unnerving investors and creating a cautious picture going forwards,” he said.
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