US producer prices fell steeply for the first time in more than a year and its effects have reverberated globally. The global stocks, commodity prices and bond yields fell on Wednesday as investor sentiments took a beating over fears of the state of the world economy.
US equity futures SPc1 was down by 1.2%. The European front was not different either pan-European FTSEurofirst 300 index fell by 1.9 percent. The worries of disinflation in the US have fueled selling with big block of shares being sold.
.ATG, the Greece’s benchmark equity index fell heavily by 10% though it made some recovery later by 1307GMT and loses stood at 7%
Alexandre Baradez, chief market analyst at IG France, “There’s been a big acceleration of the sell-off in stocks, with a spike in risk aversion spreading across the board to bonds and the currency market, and even a return of stress around Greek assets. The news flow is quickly deteriorating, including today’s U.S. data. It’s nothing to reassure investors. All the ingredients are there for further losses.”
The markets have been volatile in the recent weeks and investors are waiting for the expected hike in interest rates, particularly in the US. The macroeconomic pointers have been very disappointing especially a lower-than-expected inflation reading from China.
Investors are of the opinion that it is safer to invest in government bonds across the Euro Zone. The sobering economic activity is having its effects across the globe. European Central Bank is increasingly feeling the pressure to do something to spur economic growth and is being asked to ease its monetary policy.
The day started normally but by afternoon the stocks were in the red, with the MSCI All-Country World index .MIWD00000PUS losing 0.3 percent.
It was no different in UK with the FTSE benchmark stock index was also down 1.6 percent. The fall was precipitated by a 24% drop in the share price of drug company Shire. The drop was caused by news that U.S. rival and suitor AbbVie could reconsider its plans to buy Shire.
Ambiguity over the economic recovery is also keeping commodities under pressure. The economic lull is also having an effect on crude prices with Brent crude futures hitting a new four year low of$83.95 per barrel. US crude oil also fell to $80.60 barrel fuelling fears of further disinflation.
The falling crude prices are also having its effect on the currency markets. The US dollar is on a five year high against the Canadian Dollar and also held ground against sterling.
The emerging markets like Russia and the Middle East is also not insulated and was hit and the Rouble was at its weakest.