It’s been a nervy start to European trading on Tuesday as markets try to shake off the panic that set in on Monday. The start of the week has been a real nose-bleeder and as of yet there is no catalyst for a relief rally.
Japanese and Australian shares bore the brunt of a torrent of selling in Asian markets since many markets remained closed for the Lunar New Year. The 5% plunge in the Nikkei and 10 year JGB’s falling into the negative for the first time is a continuation of the risk-off trading that began with a sell-off in European banks on Monday. Japanese investors have lost faith in the Bank of Japan as a backstop for the stock market and have flooded into the relative safety of Japanese bonds.
A press release from Deutsche Bank (DE:DBKGn) defending its ability to pay the coupons on its debt has enabled a modest recovery in its own shares but broader markets still appear rattled.
Now that stock markets are experiencing a long-awaited downturn, some of the distortions created by European Central Bank bond-buying are coming to the fore. With yields on safe-assets pushed lower by central-banking buying, yield-hungry investors were forced into some of the murkier areas on the corporate debt world. Deutsche Bank’s contingent convertible (coco) bonds are one such asset. Because dried up liquidity means all investors can’t head for the door when there’s some stress, other assets like credit default swaps and equities are distorted by the need for hedging.
Miners were the biggest drag on the FTSE 100 with Antofagasta (L:ANTO) the top decliner as the price of copper slumped over 1% to a five-day low.
US stocks look set for a modestly higher open after finishing off their lows on Monday ahead of results from Walt Disney (N:DIS), Coca-Cola (N:KO) and CVS (N:CVS) and JOLTS job openings data.
USA pre-opening levels
S&P 500: 3 points higher at 1,856
Dow Jones: 20 points higher at 16,047
Nasdaq 100: 12 points higher at 3,972
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