Europe
If a growth downgrade from the Asia Development Bank weren't bad enough for global stock markets, knocking the mining sector sharply lower on prolonged global growth fears in Asia, the auto sector has skidded into full reverse as Volkswagen(LONDON:0P6N)s' woes continue after the company issued a profits warning for Q3, as well as announcing that the concerns over emissions could potentially affect as many as 11m cars, amid wider concerns that its problems might point to wider malpractice in the rest of the car industry.
This has translated into an almighty slap for European markets with mining stocks bearing the brunt after the Asia Development Bank took a scalpel to its growth forecasts for the Asia region, not only slicing its forecasts for China and India, but also for the broader South East Asia region.
Glencore (LONDON:GLEN)’s misery goes on with the shares now well below the 125p placing price of the 16th September, dropping briefly below 100p, as the mining sector in general comes under pressure, from lower commodity prices and a weaker global outlook.
Anglo American (LONDON:AAL), Rio Tinto (LONDON:RIO) and Antofagasta (LONDON:ANTO) are all lower as concerns grow that weaker growth prospects could last longer than markets have already priced in.
Pharmaceutical stocks are also in focus after tweeted comments last night from Democrat Presidential hopeful Hillary Clinton saying that she would be taking a closer look at speciality pharmaceutical companies, and tackle the practice of price gouging, which appears to have become more prevalent in the context of everyday use generic medication.
Given that we are in the lead-up to a Presidential election this story could well gain significant traction at a time when the private sector is under scrutiny like never before. We’ve had the scandals surrounding the banks, and the fallout over the auto industry could well have further to run after the Volkswagen (XETRA:VOWG) emission test revelations, so any hint that pharmaceutical companies are increasing revenues and profits at the expense of patients by sharply increasing prices then we could well see a sharper scrutiny on the sector on terms of price transparency, and the sector could become a political football.
The European automotive sector has also come under further pressure today as it faces its own Deepwater Horizon moment, over concerns that the probe into VW’s emissions deception might uncover much wider malpractice in the sector, with large share price declines for Daimler, Mercedes, BMW and Porsche. While there has been no loss of life in the manner of the problems seen at GM, there can be no doubt that what has been uncovered is no less serious from a litigation point of view.
As such VW's woes have continued with the company unsurprisingly issuing a Q3 profits warning of €6.5bn, while investors focus on the wider possibility that its problems in the US could well ripple out into the rest of the world. Today’s revelation that the emissions defeat device could affect as many as 11 million cars, up from the initial 0.5m has raised the possibility that this emissions cheating software could open them up to litigation in Asia, Europe and the UK as well.
This could well open the company up to billions of US dollar in fines and litigation, well in excess of the $18bn number being bandied about when the number of cars affected being talked about was half a million.
Outright deception never comes across very well as global banks will no doubt attest, and VW executives could well find themselves under an increasingly uncomfortable PR, and potentially criminal spot light in the coming weeks, something that the banking sector in particular can well relate to.
US
US stock markets have opened sharply lower today wiping out all of yesterday’s gains as jitters over the bio tech sector and global growth concerns clobbered European markets today.
Investors will be particularly focussed on last night’s comments from Hillary Clinton and looking much more closely at valuations in the pharmaceutical sector, with Johnson and Johnson and Merck (NYSE:MRK) shares likely to be significant movers in early trade.
Valeant shares are also sharply lower in the wake of yesterday’s comments given recent price increases to heart drugs Isuprel and Nitropress of 525% and 212% respectively.
US automakers have also come under pressure in the wake of the turmoil in Europe with Ford and GM shares sharply lower.
FX
The Japanese yen has been the biggest gainer today on simple risk aversion as stock markets plunge, while recent comments from Fed officials that a 2015 rate rise remains a viable prospect has helped underpin the US dollar in the wake of last week’s decision to keep rates on hold.
The euro is on the slide on expectations of further dovish chatter from ECB President Mario Draghi later this week, while the Australian dollar is the worst performer on the back of the slide in commodity prices, with copper, zinc and gold all lower, in the process acting as a drag on the mining sector in general today.
The pound has also been caught up in today’s selling pressure after August public finance data came in worse than expected.
Commodities
Today's downgrade by the Asian Development Bank has put the skids under commodity prices today, pushing zinc to five year lows on rising inventory builds, while also weighing on the rest of the commodity space. Copper and gold prices have also come under pressure as future demand expectations get pared back.
Gold prices came under pressure once more after several Fed policymakers signalled that a rate rise this year remained on the table despite last week’s hold on rates by the FOMC.
Oil prices have also taken a knock, heading back towards the bottom of their recent ranges as Iran continued to make progress on accord to lift sanctions on its oil export capability, bringing closer the day that could see an extra source of supply hit an already oversupplied market.
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