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Fear is in the air

Published Thursday, October 16th, 2014

Another day of turmoil witnessed a large fall in stock markets and bond yields. The deluge of poor data continued, beginning with a fall in the Chinese inflation rate to 1.6% followed from the US by poor retail sales figures, a fall in producer prices and a disappointing Empire State index reading.

The golden boys are all in trouble. China is slowing down, Germany flirting with recession and the US stalling. Throw in the impact of Ebola, IS, Putin, eurozone discord and the ending of QE and there is nothing to be positive about other than perhaps corporate performance in 3Q. There is little growth, and what there is looks fragile and of poor quality.

At one point the S&P was down 3% yesterday but managed to claw its way back to close down 0.81%. The FTSE lost 2.8%, the Eurofirst 300 3.2%, MIB (Italy) 4.4%, CAC (France) 3.6% and the DAX (Germany) 2.9%. Greek stocks lost 6.3% and 10 year Greek bond yields reached as high as 7.85%. The Greek crisis is back on the agenda.

The big shock of the day was the collapse at one point of the US 10 year Treasury yield to 1.87%. It bounced back to 2.17%, but the ending of QE was supposed to result in yields drifting up. It is a sign perhaps of distress or of a flight to safety prompted by concerns that there is still a big equity exodus to come. The VIX “fear gauge” hit its highest intra-day level since late 2011.

to read the rest of the report, please click here 

Posted by David Hufton