Europe open: Continental bourses join in stockmarket blood-letting
European bourses joined in the bout of stock market blood-letting globally following a violent correction overnight on Wall Street as expectations firm for central banks' policy normalisation to continue.
The pan-European Stoxx 600 index was down 2.15% to 373.8 just before 0900 GMT, while the DAX was 2% lower at 12,430.57 as it recovered from initial losses of more than 3%. The CAC 40 in Paris was down 1.9% at 5,185.17, the FTSE MIB in Milan lost 1.7% to 22445.51.
In a typical flight-to-safety move, the yield on the benchmark 10-year German bund fell by four basis points to 0.70%.
Overnight, the Dow suffered its biggest points loss ever for a single session as it plunged 1,175 points to 24,345.75, having fallen nearly 1,600 points intraday, while the S&P 500 ended down 4.1% at 2,648.94. Meanwhile, the S&P and the Dow suffered their biggest declines since August 2011, while in Asia it was a similar picture overnight, with the Nikkei and Hang Seng both down more than 4.5%.
Meanwhile, the VStoxx index of volatility for the Eurostoxx 50 index was jumping 24.02% to 23.38 points.
Having enjoyed a succession of record highs last month as investors welcomed President Donald Trump’s tax overhaul, recent signs of life in bond yields were followed by a strong non-farm payrolls report last Friday that prompted fears that the Federal Reserve's policymakers may need to hike rates by more than previously anticipated.
"Following Friday’s battering, the 1100-pt fall for the Dow yesterday means we’re in correction mode," said analyst Neil Wilson at ETX Capital, with futures markets pointing to further losses for the Dow and the VIX volatility index leaping to 38 in what is its best month since 2008.
"If investors look at underlying earnings growth and the fundamentals of the global economy, there is reason for optimism. However once this kind of stampede starts it’s hard to stop," Wilson added. "So if the fundamentals are ok, then this looks like a technically driven selloff – therefore one that should not herald Armageddon. Plenty have noted that equities were jacked up by low rates and now need to readjust to higher rate world."
Naeem Aslam at Think Markets said the fact that there has been no panic buying of gold suggests this is "a healthy correction".
"Under a real panic situation, we would have seen more than $40 move in a single day for the gold price," he said, while pointing the finger at algorithm-based funds for the size of the market's falls.