The feeling of unease drifting over financial markets, grabbed Wall Street overnight for a second trading session, sending shares lower, and bond prices soaring as investors continued to chase safety in US Treasuries.
The yield on 10 year US bonds, the key indicator for global fixed interest securities, fell to 2.50%, a new six month low. They had dipped under that level, but closed at that rate.
Gold and oil both fell (gold down to $US1,296 an ounce). The Aussie dollar eased back from its close to 94 US cents mark, to trade around 93.50. Nickel sold off on commodity markets after hitting two year highs.
Our market will start with a double digit loss of close to 20 points if the overnight share future market is any guide.
The Dow had its worst day in a month, the S&P sold off (both remember fell on Wednesday afternoon after hitting all time highs earlier in that session). Nasdaq again sold off and the Russell 2000 index, which covers small cap stocks (by US standards) flirted with correction territory (a fall of 10% from the previous peak) to end down around half a per cent and off more than 9% of that recent high.
For some reason, investors are turning risk averse, even though the flow of data is encouraging. US consumer price inflation pushed higher last month because of higher food prices (a temporary move). Annual consumer inflation returned to 2% annual in April.
US Jobless claims fell to new post GFC lows, but industrial production slowed, as did housing, which did disappoint investors on Wall Street.
In Europe, the German economy grew faster than expected, while France stalled. Inflation remains close to a disinflationary/ deflationary level, raising the belief that the European Central Bank will do something next month.
Even though the German economy grew more quickly than expected in the first quarter (0.8% instead of the forecast 0.4%), the eurozone as a whole saw growth of just 0.2% instead of 0.4%.
That was after the French economy stagnated, Italy contracted a touch and the Dutch economy plunged by 1.4%, quarter on quarter.
So European shares sold off sharply, and that continued into US trading. And the rally in bonds issued by the likes of Italy, Greece, Spain and Portugal all sold off as investors quit them, took their profits and went into cash or German, UK or US government bonds.
The benchmark Standard & Poor’s 500 index fell 17.68 points, or 0.9%, to 1,870.85. The Dow dropped more than 200 points at one stage, and finished down 1%, or 167 points at 16,446.81.
The Nasdaq Composite ended the day down 31.33 points, or 0.8%, at 4,069.29, as big cap momentum stocks sold off, again, despite a better than forecast result and forecast from equipment giant, Cisco, on Wednesday afternoon.
US analysts pointed out that for some reason, high value small cap stocks, home builders and consumer discretionary stocks, plus those big momentum companies (think Facebook), are selling off or drifting lower, despite those recent highs for the Dow and the S&P 500.
One analyst made the telling point that there is a disconnect between the top industrials, the small caps, tech stocks, the health of the economy and investor confidence that is seeing bonds rally (they were supposed to be one of the areas to avoid at the start of 2014). Big investors are cashing up.
They say that some as yet unexplained reason, the signals from the bond market are telling investors that there is bad news ahead, but no one can identify it. A Marketwatch.com story carried a headline this morning "Treasury-bond market shows signs of fear, panic buying" which sounds over the top, but sums up an emerging sentiment on Wall Street.
The Financial Times reckons the share sell off is happening because of the fear the European Central Bank will start following the Bank of England, the Fed and the Bank of Japan into massive bond purchases to try and stimulate bank lending and the sluggish eurozone economy. The low rate of eurozone inflation remains a big concern.
But it is a bit of a stretch (at the moment) to think that fears over any easing of monetary policy by the ECB (which was bullish when done by the Fed and the Bank of Japan) could have an immediate, negative impact on US sharemarkets.
That’s unless conditions in financial markets are more fraught and stretched that now apparent from the outside. Stay tuned.
The benchmark S&P/ASX200 Index and the broader All Ordinaries both added 14.3 points, or 0.3 per cent to end at 5510.8 and 5490.2 respectively. Commonwealth Bank of Australia continued to push to record highs, lifting to $81.30 during the session before easing back to a closing high of $81.20. The rest of the big banks were mostly higher too, with ANZ rising 0.2 per cent to $33.20, NAB flat at $33.59 and Westpac pushing up 0.8 per cent to $34.48.
Woolworths was another strong performer, rising 1 per cent to $37.28, while Coles owner Wesfarmers gained 0.2 per cent to $43.26.
