London: Panic gripped trading floors across the world on Tuesday, with Asia and Europe plunging after record-breaking losses on Wall Street, as investors fretted over the prospect of rising US interest rates and took profits following months of markets euphoria.
The selloff began last Friday when bright US non-farm payrolls data sparked fears that inflation will surge this year — and that the Federal Reserve will be forced to raise borrowing costs more quickly than anticipated.
In initial trade on Tuesday, European stock markets collapsed by about 3.5 per cent, mirroring dramatic falls across Asia. “It’s not doom and gloom, and it’s not financial markets Armageddon; it’s just a much needed and much overdue correction,” AxiTrader analyst James Hughes said. “There are four stages of a fall: hope, greed, panic and fear. We are not at fear, but we are at panic at the moment — which is only natural after a 1,175-point fall.”
New York’s Dow Jones Industrial Average saw its steepest ever one-day point drop, shedding a total of 1,175.20 points or a hefty 4.6 per cent in value.
And 10-year US Treasury yields are still hovering near four-year peaks.
In India, investors lost around Rs 4.95 lakh crore amid sell-off in the broader market where the benchmark BSE Sensex tumbled 1,275 points or 3.6 per cent in opening trade.
The Sensex, however, recouped losses to end at 34,195.94, losing 561.22 points, and making investors poorer by Rs 2.7 lakh crore on Tuesday.
Now bears take their revenge
Panic gripped trading floors across the world on Tuesday, with Asia and Europe plunging after record-breaking losses on Wall Street, as investors fretted over the prospect of rising US interest rates and took profits following months of markets euphoria.
At the start of trading on Tuesday the Dow shed another 2.7 percent, officially moving into what is considered a correction, a drop of 10 per cent from a recent high.
“US stocks are adding to a sharp pullback seen in the past few trading sessions, with the recent jump in bond yields and signs of inflation ticking higher appearing to spur on the selloff...” said analysts at Charles Schwab brokerage.
The S&P 500 shed 1.2 percent at the open, with the Nasdaq Composite dropping 1.9 percent. “Markets usually grind to the upside, but fall like a rock,” said analyst Naeem Aslam at trading firm ThinkMarkets.
“Traders have been looking at the market for the past year moving in one direction which was skewed to the upside. Now, it's time for the bears to take their revenge.” Prior to this week's chaotic selloff, Wall Street had enjoyed an impressive record-breaking run ever since Trump's 2016 election on hopes over the US president's pro-business tax-cutting policies. Asia and Europe had meanwhile reaped bumper gains from the improving economic outlook.
“If investors had been waiting for an opportunity to take profits, the prospect of higher than expected inflation and tightening by the Fed provided just that,” added Richard Hunter, head of markets at Interactive Investor.
“Rising interest rates, whilst potentially good news for savers, increase the cost of borrowing and the possibility of loan defaults,” he said.
“Mixed in with that, higher bond yields could increase the attractiveness of bonds as an investment destination, some of which will be at the expense of equities,” he said.
