Febrero 19, 2018

Global shares sink after major United States index enters correction

10 Febrero 2018, 04:02 | Dolorita Barahona

AFPRising inflation could lead to a hike in interest rates in the United States

Dow Jones drops

Friday's session marked the latest day of sharp swings in the past week that have pulled stocks lower after a steady climb for months to record highs. A lot of analysts are pointing that the rates popping is making a huge impact on indices since the biggest reversal last February 2016.

That was before a slight afternoon recovery.

Tyson Foods, rose 7.7 percent after the No. 1 US meat processor, reported better-than-expected quarterly results.

The up-and-down swings followed a drop of 10 percent from the latest record highs set by major US indexes just two weeks ago.

Some investors fear the market is over-stretched in the context of higher inflation and rising bond yields as central banks withdraw their easy money policies of recent years.

In currency markets, the Canadian dollar closed at an average trading value of 79.31 cents USA, down 0.15 of a U.S. cent - continuing a sharp drop that has seen the loonie rocked by global equity volatility.

The broader S&P 500 also tanked lower - finishing at 2,581- down around 100 points, or 3.75%. Trading volumes were 50 per cent higher than normal. Benchmark U.S. crude lost 64 cents to $60.51 per barrel in electronic trading on the New York Mercantile Exchange.

In the previous session and supporting the euro, German factory orders surprised on the upside increasing 3.8% month on month versus expectations of 0.7%.

New Zealand's acting Reserve Bank governor Grant Spencer said on Thursday that sharemarket volatility was "a bit of a warning sign". "Also, if we see some stabilizing in interest rates and bond yields in particular, that would seem to indicate what's going on there has settled down".

Alexandra Coupe, associate director of United States investment manager PAAMCO, said rising inflation made stocks less attractive.

Analysts cited higher Treasury bond yields as the catalyst for the drop, coupled with the view that the market surged to unsustainably high levels in December and January in the euphoria over USA tax reform.

"All of a sudden, investors as a group realized that the risk is there, and they're adjusting price to reflect that", he said.

Then there's inflation. A little, and that's all we have now, is a plus for the stock market. "Be careful what you wish for".

As I have discussed with my clients, it is very healthy to get a 5 percent to 10 percent correction in the market, but this market has barely had a 2 percent correction in the last three years.

Bond prices fell slightly.

The good news is that corrections like this aren't the end of the world for your superannuation account.

The price plunge can also be blamed in part on a few disappointing operating results and guidance from key tech companies, even though most major firms have been getting heathy report cards during the current round of earnings reports.

Almost 80 per cent of USA companies that have reported so far this earnings season have surprised analysts to the upside.

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