Europe stocks continue sliding as investors seek refuge in bonds

06 February 2018 12:53 Source:ICIS News

LONDON (ICIS)--Large falls in US and Asian stocks preceded Tuesday’s losses in European chemical stocks as investors seek refuge in bonds, in anticipation of higher inflation and interest rates.

All major stock markets in Europe were losing ground on Tuesday, with Germany’s DAX down 2.03% by 12:00 GMT, the UK’s FTSE 100 losing 2.29% and France’s CAC 40 down 2.22%.

Within chemical stocks, large European producers were also down, within the region’s chemical index down 1.96% overall by 12:00 GMT.

Large producers like BASF and Covestro’s stocks were losing 1.90% and 1.86%, respectively, while France’s Arkema and Belgium’s Solvay were down by 0.26% and 1.16%.

Fertilizers producers were being hit the hardest, with Dutch major OCI’s stock losing 6.31% of its value and Germany’s K+S down 3.18%.

Commodities also lost ground on Tuesday morning, with the international crude oil referential Brent far from the $70s/bbl achieved in January. By midday, Brent deliveries for April were trading at $67.18/bbl

The selloff in global stock markets started on 2 February, when a better-than-expected jobs report in the US sparked fears that a booming economy may bring higher inflation.

Strengthening prices and fundamentals may prompt central banks to withdraw earlier than expected from their quantitative easing (QE) programmes as well as raise interest rates, which in turn would strengthen gilds and weaken stock markets.

The US markets closed on Monday after one of their worst days in several years, with the Dow Jones Industrials down 4.60% at close.

Earlier on Tuesday, Asian stocks continued the slide, with Japan’s Nikkei closing 4.70% lower than on Monday, while China’s Shanghai Composite and Hang Seng fell 3.35% and 5.02%.

“If higher inflation materialised, then central banks would be unable to respond in the way they have done in recent years (and even decades). Our structural view was that the next financial crisis was probably unavoidable before the end of the decade,” said analysts at Germany’s Deutsche Bank on Tuesday.

“In our 2018 outlook, the base case was higher-than-expected inflation and yields but a controlled widening of spreads as the year progressed reflecting this and the likely associated higher levels of vol [volumes] that this would bring. So the price action of the last few sessions is an extreme version of our 2018 view but perhaps more in line with medium term views.”

Pictured:  A man looks at an electronic board showing Japan's Nikkei falls on Tuesday
Source: Aflo/REX/Shutterstock

By Jonathan Lopez