Wall Street Jittery as Turmoil Rattles Global Markets
Posted February 9, 2018 1:10 p.m. EST
Wall Street slipped lower Friday after the turmoil gripping markets drove stocks lower in Asia and Europe.
After ending Thursday’s session with a steep slide that marked a 10 percent drop from the market’s peak in January, the Standard & Poor’s 500 index and Dow Jones industrial average continued sliding in afternoon trading..
As one of the most turbulent weeks in recent memory ends, markets have sometimes appeared to be following their own mysterious logic. After Chinese stocks plunged Friday, European markets were steady — until they, too, fell.
Just before midday, Europe’s main indexes started to sink and by early afternoon were deep in the red. Analysts said there was no single piece of economic data or other news that might explain the sudden slump.
“We do not have a specific trigger,” said Jörg Krämer, chief executive of Commerzbank in Frankfurt. “But that’s not unusual. Volatility is high. Everyone’s nerves are raw.”
Chinese stocks were among the biggest casualties in a broad sell-off across Asia on Friday. It was a stunning reversal for Chinese shares, which investors had been snapping up only days before.
After the rout in the United States on Thursday, both the S&P 500 and the Dow were in correction territory, down more than 10 percent from their recent peaks.
The turbulence appears largely to be a product of a global economy that is humming along. For the first time in a decade, all major economics in the world are growing in sync. China has shown signs of accelerating growth, and recoveries in Japan and Europe have proved sustainable.
Investors are now growing nervous that central banks will raise interest rates in a bid to keep inflation at bay. If policymakers move too quickly, their efforts could temper the global growth.
One possible explanation for the losses in Europe was official data from Italy and France showing solid growth for manufacturers. That might have been enough for some investors to start worrying again that the European Central Bank would ease off on stimulus to the eurozone economy sooner than expected.
Whatever the cause, there is now little doubt that markets are jittery.
After being lulled into a sense of complacency by years of steadily rising stocks, even small worries can snowball into a bad day for stocks. The losses can then feed on themselves in a financial industry dominated by computerized trading systems, with U.S. weakness spreading around the world.
“Asia is going to be the tail that gets wagged by the U.S. dog,” Timothy Moe, chief Asia Pacific strategist at Goldman Sachs, said Friday.
As with stocks in the United States, Chinese shares have surged in recent months, on the back of a strong economy. An improved global outlook has led to more buying of Chinese exports. The authorities also seem to have slowed what had been an alarming borrowing binge.
But the Chinese market does offer reasons for concern. Investors kept a careful eye this week on China’s currency, the yuan, which is carefully managed by the Chinese government. It took a hit Thursday, falling as much as 1.2 percent before strengthening a bit Friday.
Before that, the yuan had been rising steadily against the U.S. dollar, leading to worries that Beijing might step in further to contain it. World markets can be sensitive to sharp swings in China’s currency.
The tough day of trading Friday put Chinese shares by some measures into correction territory.
“We are witnessing the longest rally in the history of Chinese stocks,” analysts at Goldman Sachs wrote to clients early this week, adding, “A tactical correction appears overdue, and markets could fall further.”
Shares in Shanghai fell about 4 percent Friday, while Hong Kong shares lost 3.1 percent. Shares in Tokyo fell 2.3 percent. In Europe, stocks wavered, off more than 1 percent in afternoon trading. In the logic of stock markets, bad news can sometimes be good news. Recent gains in the value of the euro against the dollar and other major currencies were expected to slow exports and potentially put the brakes on the eurozone economy.
Slower growth would, in turn, dissuade the European Central Bank from raising interest rates too soon, prolonging the cheap money that has been partly responsible for the bull market.
“The ECB has, in fact, a vital interest in keeping euro area interest rates at low levels,” Ralph Solveen, an analyst at Commerzbank, said in a note to clients Friday.