Stocks Retreat Worldwide

Stocks Retreat Worldwide

Monday’s minor dips have extended into more substantial losses on Tuesday, with stock indices around the globe in the red after an unexpected policy change in China.

Stocks Retreat Worldwide
Stocks Retreat Worldwide

The decision about what types of bond can be used as collateral for certain loans has sparked concerns of a tightening in liquidity.

The China Securities Depository and Clearing Corp (CSDC) introduced new corporate bond restrictions late last night, meaning bonds of an insufficiently high rating are no longer acceptable as collateral for repo trading. A statement from CSDC claimed their action would have little effect, saying ‘As the bond and stock markets are relatively separated, the stock market should see no major impact.’

This appears optimistic given the upshot, which has been financial markets in a state of mild alarm. By early afternoon in New York, the leading US stock indices had recovered much of the day’s losses, but still remained in negative territory. The Dow Jones was down 0.65% or 115 points, having been off by more than 200 points earlier, while the broader S&P 500 Index weathered the storm better, retreating just 0.18% to 2056.7. Those losses reflected the weak performance of other stock exchanges around the world, with the UK’s FTSE 100 and the German DAX both plunging more than 2%.

Flight to safety
As usual, the decline in risk appetite was accompanied by strong buying into assets perceived as being less risky, such as gold, silver and the Japanese yen. This safe-haven buying pushed gold up 2.4% to $1232.4 a troy ounce and boosted silver by 4.6% to 17.12 per troy ounce. USD/JPY, meanwhile, fell 1.1% to 119.34, as the yen’s rally continued into a second day, the currency also strengthening against its other major peers.

US dollar weakness
Elsewhere in the forex market, the dollar suffered a broad decline on speculation that recent declines in energy prices, and the downward pressure exerted on inflation as a consequence, will offer the Fed the latitude to persist with accommodative monetary policy. USD/CAD slid 0.4% to 114.33, EUR/USD climbed 0.56% to 1.2387, while GBP/USD rose 0.13%, despite a surprise decline in UK industrial production. Dragged down by a 0.7% contraction in manufacturing output, total UK industrial production shrank 0.1% in October, compared to a consensus estimate for growth of 0.1%.

Though manufacturing is a relatively small part of the UK economy compared to services, it does tend to correlate to overall economy activity. That said, October’s minor decline in industrial output does follow a 0.7% jump in September (revised up today from the originally-reported 0.6%), so it is too early to conclude this is part of a trend.

This information has been prepared by Nadex, a trading name of North American Derivatives Exchange, Inc., prepared by independent third parties contracted by Nadex or reproduced form third party news agencies. In addition to the disclaimer below, the material on this page does not contain an offer of, or solicitation for, a transaction in any financial instrument. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.