A race call of reasons for the ‘why’ markets around the world fell out of bed on Tuesday.
We saw Wall Street down 2% and more, European shares down a half of a per cent to more than 2%, the Aussie market off 1.5% with more to come today, oil, gold, copper and iron ore all lower.
So did we just witness another taper tanty by petulant traders or are there genuine fears about persistent inflation and rising energy prices which saw 10 year bond yields remain above 1.50% (and again topped 1.56% in trading which is as high as they got in June and July)? Or was it concerns about the health the Chinese economy and the continuing slide by property giant, Evergrande?
And then there’s the slow train wreck of the US debt limit that the vengeful Republicans are using to plunge the economy into default and damage the Biden administration in a crazed attempt to refight the November Presidential election and the January 6 insurrection in Washington.
That and the rise in bond yields probably ignited other fears and down went Wall Street, although it had a trail of red ink in Asia and European markets for a lead, which traders took.
But there was also weak consumer confidence levels in the US and the fuel and food crisis in Britain, shortages of coal and other energy across China which has closed wide swathes of the economy and then overlain of course by the continuing depredations of Covid Delta – especially in Australia?
All up it was a rough day on global markets. The ostensible trigger for the slide, which hit all sectors of Wall Street, was a rise in the yield on the benchmark 10-year Treasury bond. With the Federal Reserve preparing to slow its purchases as soon as November, investors have been selling off bonds before demand ebbs.
But that was just one of the explanations – the best reason was that the normally insular US investment markets woke up to what was happening elsewhere in the world, discovered that these factors – rising energy prices, persistent inflation and continuing supply chain problems – were also impacting the US – and sold (but of course there were the optimists on the other side of the dealings who bought!)
The Nasdaq and all its techs took the brunt of the selling pressure, losing 2.83% to 14,546.68 for its worst day since March.
Facebook, Microsoft and Alphabet lost more than 3%, while Amazon and Apple dropped more than 2% and Netflix dropped 1.5%. Large computer chip stocks struggled, with Nvidia sliding 4.5% and Qualcomm shares fell 2.7%.
The S&P 500 shed 2.04% to finish at 4,352.63 while the more value based Dow lost 569.38 points, or 1.63%, to close at 34,299.99.
Tuesday’s sell off extended the losses for the major indexes in September. The Nasdaq is down 4.7% month to date, while the S&P 500 and Dow are down 3.8% and 3%, respectively.
The overnight futures market for the ASX 200 was showing an 80 point plus fall at the opening to go with the 108 point slide on Tuesday.
The ASX 200 is down 3.4% month to date, confirming that September can be a miserable month when northern hemisphere investors return from their summer breaks and start fretting about what was obvious since May.
Iron ore prices fell around 7% with the price of 62% Fe fines from the Pilbara dropping $US7.25 to $US112.06 a tonne as the energy shortages and emissions crackdown in china continued to run into each other. President Xi Jinping continues to believe that you can order cuts in carbon emissions by executive fiat at a time when prices for carbon based energy are rising because demand for electricity is rising, and not have a train wreck.
Xi’s oddball approach (he wants to be able to boast of a 3% cut to energy consumption at the Glasgow conference and doesn’t care if it crunches the economy) is why commodity prices are going to have a volatile run from now into 2022. Iron ore prices won’t settle nor will prices of other key commodities.
Xi and his government have been trying to drive down the price of key commodities, from iron ore, copper, grains, coal, oil and gas, but has failed with energy as coal prices have soared to record highs (because he can’t control external markets) and oil and gas prices have been lifted by the situation in the US and Europe.
Oil and gas prices continue to be disrupted by the gas shortage across Europe (thanks to shortfalls from Russia, the swing supplier) and in the US where the damage caused by Hurricane Ida to facilities and the drain on stocks has seen oil and gas prices remain around multi-year highs. The prices of Brent and US crude settled lower on Tuesday but US gas rose to new seven and a half year highs.
Comex gold tumbled more than 1% to around $US1,733 an ounce, copper eased 1% to just under $US4.25 a pound and silver weakened 1% as well.
