LONDON: A collective sigh of relief swept across global trading floors on Tuesday as bargain hunters swooped on Wall Street stocks, stemming a haemorrhage that had been spreading panic among investors.
With Asian and European equity markets plunging, New York stocks started their trading day with another jaw-dropping fall as the Dow index dived nearly three per cent, adding to the previous day’s record-breaking loss.
But within minutes a fierce battle appeared to be playing out between those betting on a further downturn and those who thought that the market correction had gone too far, leading to some wild price swings.
“Traders don’t know which way to turn as uncertainty is running high,” said David Madden, market analyst at CMC. “The colossal range on the US indices sum up how irrational equity traders are at the moment, and while some go bargain hunting, others are fearful we could see another leg lower.” Even as the Dow index gyrated in and out of positive territory, the feeling spread that the worst of the brutal downturn was over.
“Dow up! Panic over, as you were everyone,” tweeted James Hughes, chief market analyst at AxiTrader, during a brief breather for the index.
Jasper Lawler, head of research at London Capital Group, tweeted: “Trader’s paradise out there right now,” in a reference to volatility which boosts brokers’ earnings from trading fees.
European stock markets were helped by the Wall Street recovery, but remained deeply in the red at the close.
The selloff striking fear in investors’ hearts began last Friday when bright US non-farm payrolls data sparked concern that inflation will surge this year — and that the Federal Reserve will in response raise borrowing costs more quickly than anticipated.
New York’s Dow Jones Industrial Average saw its steepest ever one-day point drop on Monday, shedding a total of 1,175.20 points or a hefty 4.6 per cent in value, while 10-year US Treasury yields set four-year peaks.
The downturn was so rapid that some investors wondered whether they were headed for a crash, but others welcomed what they saw as a reality check for an overbought market.
“It’s not doom and gloom, and it’s not financial markets Armageddon; it’s just a much needed and much overdue correction,” AxiTrader’s Hughes said.
“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 the 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,” Richard Hunter, head of markets at online stockbroker Interactive Investor, told AFP.
On Tuesday, Tokyo stocks led a collapse throughout Asia, briefly diving almost seven per cent before closing down 4.7 per cent.
Hong Kong lost more than five per cent in its worst day since summer 2015, while Sydney and Singapore each sank three per cent.
Bitcoin continued its spiral downwards after some banks banned their customers from buying it with credit cards. The news is the latest to hit the cryptocurrency after recent crackdowns by authorities in India, South Korea, China and Russia.
Key figures around 1635 GMT
London – FTSE 100: DOWN 2.6 per cent at 7,141.40 points (close) Frankfurt – DAX 30: DOWN 2.3 per cent at 12,392.66 (close) Paris – CAC 40: DOWN 2.4 per cent at 5,161.81 (close) EURO STOXX 50: DOWN 2.5 per cent at 3,392.53 New York – DOW: DOWN 0.5 per cent at 24,218.10 New York – S&P 500: DOWN 0.7 per cent at 2,630.78 Tokyo – Nikkei 225: DOWN 4.7 per cent at 21,610.24 (close) Hong Kong – Hang Seng: DOWN 5.1 per cent at 30,595.42 (close) Shanghai – Composite: DOWN 3.4 per cent at 3,370.65 (close) Euro/dollar: DOWN at $1.2357 from $1.2373 at 2200 GMT Pound/dollar: DOWN at $1.3925 from $1.3958 Dollar/yen: UP at 109.15 yen from 109.13 yen Oil – Brent North Sea: DOWN 66 cents at $66.96 per barrel Oil – West Texas Intermediate: DOWN 29 cents at $63.86.