File Photo: Level III Quote: Definition and How Levels are Used in Stocks
Vidya Ranganathan previews European and global markets.
It’s happening again in markets. European and U.S. stock futures predict they will follow Japan’s Nikkei and Asian stock markets’ strong rebound.
Japan’s rate hike, an unwind of yen-funded global trades, U.S. job losses, and Middle East concerns spurred the selloff, but a soothing message from central bank officials turned things around.
As Europe wakes up, the Nikkei is up 9%, nearly erasing Monday’s 12.4% drop into bear market territory.
Wall Street is stabilizing with S&P 500 futures up 1.5%. The S&P 500 lost 8% of its value in three days.
The Europe-wide STOXX 600 index closed below 500 points for a second day on Monday, its biggest three-day drop since June 2022. A rise is likely.
Sceptics say Japan is not the canary since it always recovers quickly from sell-offs. The carnage may continue due to fears over exaggerated tech earnings and the Fed’s overly high rates.
Add to that the global overhang of yen-funded investments in U.S. stocks and emerging market high-yielders like India’s rupee, Mexico’s peso, and South Africa’s rand.
Wall Street’s main indexes fell dramatically on Monday as U.S. recession fears rattled global markets and drove investors out of risky assets.
After Monday’s dramatic swings, the dollar rose to 145.50 yen from 141.675 and the safe-haven Swiss franc.
Watch junk bond spreads, which have blown up as fear gauges. The spread between two-year and 10-year Treasury notes went positive on Monday for the first time since July 2022, another recession indication.
Nikkei volatility index, is double last week’s values. STOXX volatility index finished Monday around its highest level since March 2022, while S&P volatility remains high.
Fear should dissipate, boosting Germany’s safe-haven two-year bond rate. Monday marked its lowest level since March 2023
What might affect markets on Tuesday:
Economic data: Germany industrial orders, UK S&P global construction PMI, euro zone retail sales, Q2 household debt and credit report, U.S. trade statistics. Europe earnings: abrdn PLC Adecco Group AG ,Bayer AG , Galenica AG , InterContinental Hotels Group PLC ,
Reopening of German five-year and UK 19-year government debt auctions
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