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Monday 14.35 BST. Investors are sharply paring positions in growth-focused assets as worries about the US economy and the eurozone debt crisis continue to hit sentiment.
The FTSE All-World equity index is down 1.8 per cent, following a rotten session in Asia and a rough day for Europe. There is broad softness in commodities, where copper is off 1.7 per cent to $4.05 a pound and Brent crude is lower by 1.2 per cent to $111.00 a barrel.
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Corporate and sovereign credit default swap indices in Europe are widening, and gold is benefiting from the tension, rising 0.2 per cent to $1,888 an ounce.
Wall Street is closed on Monday for the labour day vacation, but in electronic trading the S&P 500 futures contract is down 1.4 per cent.
The action at the start of the week is primarily focused on two themes: the hangover from an extremely disappointing US jobs report on Friday and nervousness ahead of a week of eurozone fiscal and political wrangling.
The former was one of the main reasons why the S&P 500 finished the previous session down 2.5 per cent as investors fretted that the world’s biggest economy was at risk of dipping back into recession.
Bulls had hoped that the market was re-entering that Panglossian state where good data were welcomed but bad data were also considered good news because they may hasten the US Federal Reserve to deliver more support to financial assets as part of its attempt to gird sentiment – rather like was seen a year ago, as QE2 was on the cards,
But it appears that many in the market sense a greater reluctance by the Fed to deliver further quantitative easing, and in any event there is a growing view that any such move may prove counter-productive as it would reinforce a feeling of exasperation. Thus news that no jobs were created in August in the US took the S&P 500 back down to a one-week low and ensured that the volatility seen during August carried over into the fresh month.
It is not just the US economy that is a cause for concern. Global service sector surveys are being released on Monday and they are adding to the sour mood. Standouts include the UK, where activity fell the most in a decade, and China, where growth was the slowest on record, according to HSBC, a sign that Beijing’s monetary tightening is taking effect.
Another reason why markets have been so skittish during the late summer is that the eurozone budget crisis is delivering one of its pulses of stress. Fiscal vacillation in Rome and doubts about Greece’s latest bail-out tranche are again causing tremors. Italian 10-year yields have risen for the 11th consecutive session, up 11 basis points to 5.39 per cent, even as the European Central Bank is seen standing as a backstop.
The ECB will meet on Thursday to discuss monetary policy and the Italian debt purchase programme is likely to be on the agenda.
Traders thus this week are going to have to navigate developments in the discussions between Athens and its lenders and also track the passage of the Italian government’s austerity proposals.
In addition, Wednesday is expected to see a court ruling in Germany that may affect the country’s participation in financial rescue packages – potentially removing the assumption that the region’s biggest economy will stand shoulder to shoulder with weaker peers.
The current reaction suggests investors are not overly optimistic about these issues. The yield on the 10-year German Bund has hit a recent record low of 1.90 per cent, down 11 basis points on the session.
The US Treasury market is closed, but benchmark yields finished on Friday near record lows too, of 1.99 per cent.
Little surprise, then, that the euro is under pressure. The single currency is down 0.4 per cent to $1.4108 and the Swiss franc is leading the perceived havens with a gain of 0.8 per cent to SFr1.1075 per euro.
European stocks are under the cosh, with the FTSE Eurofirst 300 sporting a loss of 3,3 per cent as the banking sub-index slides 5.5 per cent on sovereign debt exposure and mortgage product mis-selling fears.
Earlier in Asia, the repercussions of the US jobs data rattled investors, pounding exporters, technology shares and commodity producers. Tokyo’s Nikkei 225 lost 1.9 per cent and Shanghai shed 2 per cent as the FTSE Asia Pacific index declined 2.6 per cent.
The resource-heavy Australian market was badly hit, with Sydney’s S&P/ASX 200 falling 2.4 per cent. But one of the worst performers was the highly sensitive South Korean bourse, where the Kospi tumbled 4.4 per cent as consumer-focused technology plays in particular took a pounding.
