February 5, 2018, by Lorcan Roche Kelly
Last Friday’s stock market rout in the U.S. spread to Asian and European markets this morning. The MSCI Asia Pacific Index dropped 1.5 percent overnight, with Japan’s Topix Index closing 2.2 percent lower. In Europe, the Stoxx 600 Index was 1.1 percent lower at 5:45 a.m. Eastern Time, with utilities the only sector putting in a positive performance. S&P 500 futures pared earlier losses to 0.3 percent as investors assess whether the weak start to February is the beginning of a major move, or just a blip.
One thing that may give equity traders some solace this morning is the relative calm in the bond market. The yield on the U.S. 10-year Treasury was at 2.849 percent by 5:45 a.m., close to unchanged from Friday’s close. Worries that spiking bond yields are driving the equity slump should ease if the bond market holds at current levels. But while sovereign bonds seem to be stabilizing, S&P Global Ratings has warned the next default cycle in corporate debt may not be far away.
A composite Purchasing Managers’ Index for the euro area rose to 58.8 in January, with the increase toward the strongest level in almost 12 years driven by a faster-than-expected expansion in the services sector, particularly in Germany. There was less good news for the U.K., where IHS Markit’s Purchasing Managers Index for services unexpectedly fell to 53 for the month. Traders will keep an eye on Mario Draghi’s testimony to the European Parliament later today to see if the region’s continued economic expansion will lead to any hints of a sooner-than-expected end to the ECB’s accommodative monetary stance.
Talks in Germany on forming a new government that would give Angela Merkel a fourth term as chancellor have been extended past yesterday’s deadline as both Merkel’s Christian Democratic-led bloc and the Social Democrats edge closer to agreement. While Merkel’s chances of continuing in her position may be increasing, those of British Prime Minister Theresa May could be declining as hard choices over Brexit seem to be pushing members of her ruling Conservative Party close to open revolt.
Broadcom Ltd. is planning to raise its offer for Qualcomm Inc. to around $120 billion, or $80 to $82 a share, according to a person with knowledge of the matter, in an attempt to force Qualcomm to the table for the largest-ever technology deal. Broadcom intends to announce the new bid later this morning, according to the person. Shares in the target company were 6.1 percent higher at $70.10 in pre-market trading.