With the worst month for global markets in two years now in the history books, world stocks entered March with shaky knees as global equity markets and US futures are a sea of red this morning, as European shares drop the most since a global rout three weeks ago following sharp declines in the U.S. and Asia ahead of Powell’s second testimony, and amid talk that Trump is ready to announce steep tariffs on steel and aluminum imports.
After attempting a breakout above the unchanged line overnight, S&P 500 Index futures have drifted lower, and the selloff has accelerated in recent minutes, sliding below 2700.
Today’s main event for markets will be Fed Chairman Jerome Powell’s appearance before the Senate Banking Committee following his comments Tuesday that spurred speculation the U.S. central bank might raise rates four times this year. Chinese purchasing managers’ indexes missed estimates on Wednesday, while President Donald Trump warned the U.S. would use “all available tools” to pressure the nation on trade.
Philip Shaw, chief economist at Investec in London said Powell’s testimony was unlikely to change from the one he delivered on Tuesday, putting the focus on the question and answer session.
“He (Powell) appears to have got an easy ride from lawmakers in the sense that the technical questioning on Tuesday wasn’t too heavy,” Shaw said. “He may not have such an easy time today with the Senate Banking Committee.”
Confirming the risk-off mood, the U.S. dollar rose to six-week highs against G-10 currencies while the gap between short-dated U.S. and German bond yields was at its widest since 1997. MSCI’s all-country equity benchmark fell 0.4% after snapping a record 15-month long winning streak in February, while European stocks lost almost 1 percent
Asian equity markets were hit hard after the S&P 500 and DJIA posted their worst monthly performance in over 2 years. This weighed on the Asia-Pac majors from the open with ASX 200 (-0.7%) led lower by weakness in energy names after similar underperformance of the sector in US due to declines in crude, while Nikkei 225 (-1.6%) suffered broad losses amid a firmer JPY. Chinese bourses outperformed, Hang Seng (+0.7%) and Shanghai Comp. (+0.4%) with pressure somewhat alleviated following better than expected Chinese Caixin Manufacturing PMI data and the resumption of PBoC liquidity operations.
Europe was also hit hard, with the Stoxx 50 down over -1%, as retailers and media companies were among the biggest losers in the Stocks Europe 600 Index as some earnings missed estimates and manufacturing data showed mounting signs growth momentum may have peaked. In terms of sector-specific moves, losses are relatively broad-based with all ten sectors trading with losses; minor underperformance in the IT sector with Dialog Semiconductor paring back some of yesterday’s earnings-inspired gains. Ultimately, this morning’s trade has been one dominated by earnings with notable movers including: Cobham (+11.6%), Peugeot (+6.6%), AB InBev (+5.3%), Eiffage (+2%), WPP (-13.2%), Adecco (-8.5%), Carrefour (-6.5%), Beiersdorf (-3.4%).
“A simultaneous sell-off in equity and bond markets, higher U.S. yields, and concerns of possible outflows continue to buttress USD/Asia,” says Andy Ji, Asian currency strategist at Commonwealth Bank of Australia in Singapore. China’s faltering manufacturing PMI has stoked worries of weaker growth momentum, he says.
Ahead of Powell, Treasury yields fell to a two-week low despite surging earlier in the week on his comments which riled markets earlier this week. . Treasuries began unwinding Wednesday’s strong month-end related buying with 10-year futures edging lower from the open.
In global macro, the Bloomberg Dollar Spot Index rose to a six-week high before Powell’s Senate testimony, and preparations for trade wars as Trump is set to unveil steep tariffs on steel and aluminum imports, hurting EM exporters. Traders will watch for consistency in Powell’s message earlier this week on faster pace of tightening. The greenback’s major peers failed to sustain Asia-session gains even as month-end flows that had been supporting the dollar have ended.
The Aussie dollar dropped to a two-month low after disappointing capital expenditure data encouraged leveraged funds to add to short positions. Asia’s emerging currencies fell after a drop in U.S. stocks damped appetite for risk and the dollar kept rising. The region’s sovereign notes were mixed, while most stock markets rose.
Elsewhere, the U.K. pound extended a decline after the European Union published a draft Brexit treaty, squaring off with Prime Minister Theresa May.
Aluminum headed lower with President Donald Trump set to announce steep import tariffs on Thursday. West Texas Intermediate crude retreated for a third day, with oil futures seeing very little in the way of price action during Asia-Pac and European trade following yesterday’s DoE-inspired sell-off with newsflow today otherwise particularly light. In metals markets, spot gold has been unable to benefit from the risk aversion seen in European equity markets as the firmer USD supresses prices and extends on recent losses. Elsewhere, Chinese steel futures were seen higher overnight as the prospects of additional output cuts supports prices, whilst copper prices endured another session of losses despite encouraging Chinese Caixin Manufacturing PMI.
Key events include Powell’s comments, Trump’s announcement of trade sanctions, the ISM and vehicle data and reports from companies including Nordstrom and Kohl’s
Market Snapshot
