Main topics of the day in the markets of Europe: the flight from risk on fears of negative consequences of tax reform in the United States

Leading stock indexes of Europe on Tuesday after falling to falling stock markets in the US and Asia amid growing concerns about the rising cost of debt service.

By 14:40 GMT the pan-European Stoxx Europe 600 fell by 2.2% compared to the level of yesterday’s closing with the decline of the British FTSE-100 index by 2.3%, the German DAX down 2.1%, France’s CAC 40 down 2.2%. Among leaders of falling – actions automakers, chemical companies and technology companies.

Monday, February 5, the US stock indices DJIA S&P 500 and Nasdaq Composite fell by 4.6%, 4.1% and 3.8%, respectively. The loss of the us indexes at the end of trading session became the highest in the last six years. Then, in the midst of sales was the Asian markets. Japanese index Nikkei on Tuesday initially fell more than 5%, but the adjusted closing loss to 4.7%. The stock exchange index Hong Kong Hang Seng closed with a loss of 5.1%, the index of Shanghai stock exchange Shanghai Composite fell 3.4%, South Korea’s Kospi fell 1.5%.

The decline in world stock indices began last week and escalated on Friday, when the DJIA index fell by 2.5%. Analysts believe that investors reacted negatively to some report data on the US labor market (Non-farm payrolls) indicating a possible faster-than-expected growth of inflation in the country. According to the U.S. Department of labor, in January the average hourly wage in enterprises outside the agricultural sector of the USA grew by 2.9% yoy, the fastest rate since 2009. This message provoked an increase in the yield of US Treasury bonds. The yield on 10-year UST rose on Friday to a four-year high of 2.85% on expectations of more aggressive action of the fed in the cycle of raising the Federal funds rate.

Negative attitude of investors towards risky assets also associated with the expected expansion of the budget deficit of the US after the implementation of tax reform. At the beginning of this year, the U.S. Treasury announced its intention to increase borrowing to $ 40 billion, and it has become one of the main triggers of change in market value Treasury bonds in January amid reports on the adoption by Congress of the tax reform. The excess of the yield of UST’s dividend yield on some stocks has forced some of the larger funds to reduce the proportion of shares in the portfolios with the relocation of funds to less risky Treasury bonds.

In addition, after the progressive growth of the us stock indices last year on the balances of the major funds has significantly decreased the amount of liquidity, which fell in January to historic lows. Therefore, in conditions of downward correction in the markets, many investors with a high level of leverage there is a problem with an additional cash security of their accounts, and they are faced with forced closure of positions (margin call). The result of the continued liquidation of long positions on us stocks technical trading system that reacts to certain algorithms, gave the order for the automatic sale of shares. Thus on Monday there was a situation flash crash – a sharp collapse of quotations is caused by technical sales and panic actions of investors.

According to Bloomberg, the drop in stock indices richest people in the world in one day lost 114 billion dollars. In particular, the losses of Warren Baffeta amounted to 5.1 billion dollars, as Facebook founder Mark Zuckerberg fell by 3.6 billion, Amazon founder Jeff Bezos is not counted 3.3 billion, and the Google guys Larry page and Sergey Brin had suffered a loss of 2.3 billion dollars.

Monday, February 5, was the first working day of the new fed Chairman Jerome Powell, who was succeeded by Janet Yellen. However, experts do not attribute the drop in the stock markets with the changes in the leadership of the fed. It is expected that Powell will continue the policy of Janet Yellen, allowing only a very slow increase in the key rate. It should also be noted that last week the fed announced its intention to conduct rigorous stress tests of systemically important banks, including in terms of testing the significant deterioration in economic conditions with rising unemployment in USA up to 10% (from the current 4.1%), and also with the simulation of a crisis situation on the real estate market and in consumer lending.

Despite a continuing decline in today world stock markets, many Fund managers believe that the reason for panic. In an interview with CNBC, the asset Manager Miton Group Eric Moore reported that he is confident in his portfolio, “dividend whose characteristics are not changed in the last 48 hours.” He noted that economic fundamentals remain strong and the recent collapse was the result of a technical correction after last year, US stocks were often historical highs. However, the majority of experts expects continued volatility in the markets over the next month.

The cryptocurrency market is likely to remain in the field of view of the investors, as an indicator of flight from risks. Today the exchange rate of bitcoin fell below $ 6,000, reaching in the morning mark 5947 dollars and losing your cost more than 70% compared to the record level of $ 20,000, recorded 17 Dec 2017. The main reason sales of bitcoin is tighter regulation of the financial markets of cryptocurrencies offices around the world. The current bitcoin slightly adjusted losses and reached the level of 6272 (-9.3% from yesterday’s close).

In addition to the situation on global markets, European investors on Tuesday focused on quarterly reports from leading companies. In particular, French Bank BNP Paribas reported a decrease in net profit in the IV quarter of 2017 1.1% to 1.43 billion euros, which was worse than market expectations. Capitalization of the Bank to the current time decreased by 3.1%.

In turn, the Spanish Bank Intensa Sanpaolo has pleased shareholders with growth in quarterly and annual profits in excess of forecasts. Its shares rose 1.1%.

Swedish Bank Swedbank also reported higher operating income in the fourth quarter due to higher commissions and interest income. Its shares are down just 0.3%.

Shares of oil company BP fell 1.1%, despite the release of data on growth per annum compared to 3.39 billion increased revenue by 31.3% to 240.2 billion. Extraction of BP by year-end 2017 increased by 10%, to 3.59 million barrels of oil equivalent per day.

The price of the near contract on Brent crude to the current time has reached to $ 66.95 per barrel. again approaching the intraday minimum at $ 66.8 per barrel. Compared to Monday’s closing level of crude oil prices fell by almost 1%.

Prepared using materials MarketWatch and CNBC.

Main topics of the day in the markets of Europe: the flight from risk on fears of negative consequences of tax reform in the United States 06.02.2018

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