Savaged world stocks face for worst week since 2011

LONDON - Reuters

Reeling world stock markets took another blow on Feb. 9 when Chinese shares sank 4 percent, as concern about rising borrowing costs and soaring volatility put them on course for their worst week since the height of the eurozone crisis.

Losses on European bourses accelerated and volatility rose on Friday after a modestly lower open.

China’s drop ripped up market confidence again after a second 1,000-point loss this week on the U.S. Dow Jones Industrial index, putting it officially into correction territory.

Capital flow figures also showed a record $30 billion had already been yanked out of stocks during the rout, but even after that, Bank of America’s closely followed “Bull Bear” indicator was still flashing red and warning investors to sell.

“After the moves earlier this week market investor sentiment is fragile, and because of this we aren’t expecting the markets to immediately start moving higher once again,” said J.P. Morgan Asset Management Global Market Strategist Kerry Craig.

“But given that U.S. markets are now in correction territory - with a 10 percent drop since the market peak in January - it’s likely that the most severe gyrations will hopefully have passed,” he added.

U.S. futures were up 0.7 percent early in the European trading day, but fell back by 1200 GMT. Dow Jones futures were last down 0.1 percent, while SP 500 futures edged up 0.1 percent.

The main gauge of European stock volatility extended hit its highest level since June 2016, when the Brexit vote sent markets spiraling.
But implied volatility on the SP 500 was calmer, falling back slightly ahead of the U.S. open.

Chinese equities were hurt by the drop in global shares and by traders closing positions before the Lunar New Year holidays starting next week.

The Shanghai Composite Index had tumbled as much as 6.0 percent to its lowest since May 2017, and the blue chip CSI300 index dived 6.1 percent.

Both indexes pruned the losses to just over 4 percent by the time they closed, but still had their largest single-day losses since February 2016.

Japan’s Nikkei also shed 2.3 percent, sealing a weekly loss of 8.1 percent - also its biggest since February 2016.

For MSCI’s broadest index of world shares, the 47-country ACWI the slump was 6.2 percent, which puts it on track for its biggest loss since September 2011.

At that point markets where being slammed by worries about Greek debt default and a collapse of the eurozone. The Federal Reserve was also starting one of its mass bond buying programs.

“The correction phase in equities could last through February and possibly into March,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.