February 6, 2018, by Lorcan Roche Kelly
Yesterday’s tumultuous U.S. stock session, which saw the Dow Jones Industrial Average drop as much as 1,500 points, has spread across the world. Overnight, the MSCI Asia Pacific Index plunged 3.5 percent to wipe out gains for the year, while Japan’s Nikkei 225 Stock Average closed 4.7 percent lower to enter a so-called correction, capping a 10 percent decline from the recent peak. In Europe, the Stoxx 600 Index was 1.8 percent lower at 5:45 a.m. Eastern Time, with every industry sector losing ground. S&P 500 futures were unchanged, in a premarket that has seen large swings in both directions. Follow Bloomberg’s live blog of the market moves here.
The plunge in stocks has seen one of traders’ favorite strategies of late – shorting volatility – get hit very hard. The Cboe Volatility Index, or VIX Index, was at 42.62 this morning, up from 17.31 at the end of last week. The surge is raising questions about products tied to the gauge. Trading in the VelocityShares Daily Inverse VIX Short-Term ETN, which saw returns of 187 percent last year, was halted this morning. BlackRock Inc., the world’s biggest asset manager, called for more regulation of the products.
Government bond markets are seeing a reversal of recent declines as traders seek sanctuary in safer assets. Sovereign debt in Europe is rallying, with yields on German, French and U.K. bonds all falling. The yield on the 10-year Treasury was largely unchanged at 2.724 percent after a significant rally yesterday as stocks fell. The equity selloff has investors changing their bets on the likely path of Federal Reserve rate increases, with the market implied odds of hikes later this year easing.
A barrel of West Texas Intermediate for March delivery dropped to $63.85 by 5:45 a.m. as raw materials were caught in the market selloff. There are some early signs of the overnight declines in metals easing as the Bloomberg Commodity Index pared losses to 0.1 percent. Gold, which traditionally does well in times of market uncertainty, rose slightly to $1343.36 an ounce.
Bitcoin briefly traded below $6,000 overnight as weakness in digital tokens continued, with Ripple, Ether and Litecoin also tumbling at least 11 percent. The plunge in cryptocurrencies means that many miners of the tokens are hitting a crunch point where running the hardware to extract new coins is more costly than the value of those coins.