Stocks take biggest two-day dive in six months
Investors fret over tumbling oil prices and a jump in borrowing costs
Traders work on the floor of the New York Stock Exchange. Photograph: Justin Lane/EPA
World stocks declined in their biggest two-day dive in almost six months on Tuesday as tumbling oil prices and a jump in global borrowing costs cooled the year’s euphoric start in financial markets.
Lacklustre German inflation curbed a rise in US Treasury yields - the benchmark for world lending rates - after they touched their strongest level in nearly four years overnight at 2.733 per cent. Stocks on Wall Street shed almost 1 percent, led by a decline in energy shares amid ongoing evidence of rising US crude output. A plunge in healthcare-related companies also pulled stocks lower after Amazon.com, Berkshire Hathaway and JPMorgan said they plan to form a venture to cut costs for their US employees.
The Iseq closed 75 points down at 6,983 shadowing other European bourses and in line with financials elsewhere Bank of Ireland and AIB, which have traded strongly since the start of the year, lost ground. Bank of Ireland was down 1.5 per cent €8.01 while AIB was down nearly 3 per cent at €5.63. Despite reaching a recognition agreement with a UK pilots union, Ryanair was down over 2 per cent at €16.37, albeit there was a sector-wide decline in airline stocks.
After a positive few days, property firm Glenveagh shed nearly 1 per cent to close at €1.21. Swiss Irish food group Aryzta, which has been under pressure after another drop in earnings, fell a further 1 per cent to €22.38
The UK’s top share index fell to five-week lows on Tuesday as investors took profits on miners and banks, so-called cyclical sectors which have enjoyed a strong start to 2018.
The blue chip FTSE 100 index ended down 1.1 per cent at 7,587.98 points, in line with a broader slide among European markets. Over the past fortnight the rally that has seen the FTSE 100 hit a series of record highs has sputtered due to the index’s heavy weighting in stocks which are sensitive to the economic cycle, such as financials and commodities.
On the day, financials took more than 26 points off the index, while materials and energy together sliced off around 32 points. Shares in miner Anglo American fell 2.3 per cent, while peers Antofagasta, Glencore and BHP Billiton were down between 1.7 per cent to 1.9 per cent. Among banks, RBS and Barclays were both down 2.7 per cent. Shares in London-listed Dublin-headquartered food giant Greencore closed down 1.6 per cent at £1.99 after initialing risng 5 per cent on foot of positive quarterly earnings.
More defensive stocks were the biggest risers, with consumer goods group Reckitt Benckiser up 1.4 per cent as a weaker pound helped big, international stocks gain ground. Despite publishing a positive set of quarterly numbers, Dublin-based UDG Healthcare saw its stock fall 2 per cent to £7.94
European shares fell back on Tuesday as global markets took a risk-averse turn, with cyclical sectors including mining and financials suffering the sharpest losses. Europe’s STOXX 600 ended down 0.9 per cent, suffering its biggest one-day loss since early November.
Results drove the bulk of trading, with investors rewarding Swatch and Alfa Laval while Leonardo, Loomis and Philips disappointed. Leonardo was bottom of the STOXX, down 12 percent. The Italian defence contractor pledged double digit profit growth in its first business plan under chief executive Alessandro Profumo but disappointed investors on shorter term prospects, months after a profit warning clubbed shares. Loomis fell 7.6 per cent after the Swedish support services firm reported fourth-quarter profit missed forecasts. Swatch gained 5.1 per cent after impressive results. The Swiss watchmaker’s profit rose 28 percent in 2017, and it said it expected ‘very positive’ growth in 2018.
US stocks are on pace for the biggest two-day decline since August, while yields on benchmark government bonds are near April 2014 highs, as caution creeps into markets after one of the best starts to a year in recent history.
The SandP 500 Index fell the most in seven weeks and the Dow Jones Industrial Average slumped more than 200 points. Health-care shares led losses after Amazon.com, JPMorgan Chase and Berkshire Hathaway announced plans for a joint unit that may disrupt the industry.
Investors are weighing whether stronger corporate earnings, a pick-up in economic growth and optimism over US tax cuts can continue driving up prices in markets that recently touched their highest on record; Goldman Sachs predicts a correction is on the horizon, but says any such pullback would be a buying opportunity. “It clearly is a worldwide reaction as investors have maybe started to take notice of how much the valuations have come up,” said Peter Jankovskis, co-chief investment officer of Lisle, Illinois-based Oakbrook Investments.
Additional reporting Reuter/Bloomberg