Markets in Europe and the US sold off sharply overnight as oil prices fell, more weak figures from China worried investors and European banks fell sharply on weak results. As a result, the Aussie market is facing a 63 point fall on the ASX 200 this morning – not all of yesterday’s surprise 111 point surge off the back of the Reserve Bank’s surprise rate cut, but enough to give the Federal budget a rough welcome this morning.
The Aussie dollar kept falling overnight, trading well under75 US cents at 74.84 just before 8 am in early Asian trading. That’s a fall of nearly two US cents in the wake of the RBA’s cut to the cash rate of 0.25 (to a new record low of 1.75%). On Wall Street, the S&P 500 slumped 18.06 points, or 0.9%, to 2,063.37, with all of the 10 main sectors losing ground.
The Dow Jones dropped 140.25 points, or 0.8%, to 17,750.91, while the Nasdaq Composite fell 54.37 points, or 1.1%, to 4,763. Investors singled out the RBA’s cut as one of the factors behind the global sell off. Marketwatch.com reported:
"Analysts noted that an unexpected interest rate cut by Australia’s central bank added to already gloomy sentiment. “A surprise rate cut by the Reserve Bank of Australia is probably an attempt to stop their currency from appreciating, but if all central banks do that, it’s a race to nowhere,” said Colin Cieszynski, senior market analyst at CMC Markets.
The euro jumped to its highest level since August 2015 earlier today, surging past $1.16, while the yen hit an 18-month high, intensifying concerns that central bank policy has run out of steam.
European stocks closed sharply lower Tuesday, logging its worst three-day decline in nearly three months as the euro hit a roughly nine-month high against the US dollar.
Selling in bank shares following poor financial results in the sector also weighed, with share in banks like UBS, Commerzbank,HSBC and Deutsche Bank down sharply. Airline and materials shares also fell sharply.
Bond yields also fell as investors looked for safety. The euro hit a new 15 month high against the greenback, while the yen hit a series of 18 month highs against the uS currency.
The Stoxx Europe 600 fell 1.7% to 335.56, ending at the lowest close since April 12, according to FactSet data.Germany’s Dax index fell 1.9% to 9,926.77, the first close below 10,000 since April 12.
France’s CAC 40 lost 1.6% to 4,371.98, Italy’s FTSE MIB index slumped 2.5% to 17.966.81. Spain’s IBEX 35 was down 2.9% to 8,764.90 and London’s FTSE 100 lost 0.9% at end at 6,185.59.
The fall in oil prices contributing to the weakness, while attention has focused on European banks. Commerzbank shares fell more than 11% , while UBS dropped 8% after reporting surprisingly weak quarterly results.
US oil futures fell for a third straight session overnight, pressured by returning fears of a supply glut after Reuters reported that production by members of the Organization of the Petroleum Exporting Countries rose in April. West Texas Intermediate crude for June delivery fell $US1.13, or 2.5%, to settle at $US43.65 a barrel.
After climbing 5.5% over the past gold futures fell on Comex in New York, losing $4, or 0.3%, at $1,291.80 an ounce and ending six rises in a row. Comex July silver futures lost 18.3 cents, or 1%, to settle at $17.499 an ounce. In April, prices for the metal had jumped 15%. And Comex copper for July delivery settled down 4.75 cents, or 2.1%, at $2.2190 a pound, following on from the weakness on the LME in London.
Three month copper on the London Metal Exchange ended down 2.6% at $US4921 a tonne. A slightly stronger greenback helped push the metal (and many others lower, such as gold and silver), but the big driver was the Caixin/Markit survey of China’s manufacturing sector which fell to 49.4 last month from 49.7 in March, the 14th consecutive month of shrinkage. That was a shock and contrasts top the still positive growth picture in the government’s official PMI survey.
Three-month aluminium fell 2.6% to $US1634 a tonne. But it rose about 10% in April and is trading near its highest since July last year. Zinc down 2.1% at $US1897, lead slid 2.2% to $US1765.5, tin rose 0.3% to $US17,270 and nickel added 0.8% to $US9520 after rising strongly in April
