As if markets did not have enough to worry about with this weekend’s Italian election and SPD “grand coalition” referendum, overnight stocks were slammed by growing worries of global trade war as well as a warning from BOJ governor Kuroda that Japan’s QE may be coming to an end.

As noted earlier, Kuroda hint that the BOJ will start thinking about how to exit its massive monetary stimulus program around the fiscal year starting in April 2019 sent the USDJPY tumbling, pushing it to the lowest level since November 2016. Kuroda’s statement slammed Japan stocks, with the Topix Index deepening losses while Japanese bond yields climbed.

As Bloomberg noted, Kuroda’s comments were seen as further evidence that the era of massive central-bank stimulus is coming to an end. Earlier this week, Fed chair Jerome Powell opened the door to speculation that the central bank may quicken the pace of monetary tightening, a move investors worry could derail economic expansion.

A few hours later, just before 6 am ET, a tweet from Donald Trump claiming that “trade wars are good and easy to win” added to the pain, sending the dollar and S&P futures tumbling to session lows, as the market gradually realizes that Trump may not be backing down.

 

 

 

The result this morning is a sea in global equity markets…

 

… while S&P futures are currently trading near sessions lows, with the Dow set to open about 200 points lower and the E-mini trading around 2,660, over 100 points below Tuesday’s highs.

 

In Europe, the Stoxx Euro 600 Index dropped for a fourth day, with Germany’s DAX gauge reaching a six-month low, as carmakers slumped; 85% of the Stoxx 600 was in the red. Industrial and auto names are the underperformers this morning over fears of production cost hikes. Noticeable laggards contain the likes of Fiat Chrysler (-4.9%), LafargeHolcim (-5.0%) ArcelorMittal (-4.0%), ThyssenKrupp (-2.8%), and Peugeot (-1.8%). DAX dropped as much as 3%, a notable laggard as investors grow cautious over Sunday’s SPD vote and as such, the index made a breach of the psychological 12000 level. Political risk is also filtering through to the FSTE MIB (-2.1%) as markets prep themselves for this weekend’s Italian election.

As a result of the confluence of risk events, volatility appears to again be on the rise, with the VIX rising above 24 this morning. The VIX is up over 43% this week in anticipation of more turmoil.

 

“We’re entering a period of turbulence,” Sebastien Page, head of asset allocation at T. Rowe Price, told Bloomberg TV from Baltimore. “So at the margin we are taking away from equities, adding both bonds and cash.”

In macro, the biggest loser was the dollar, slammed by Trump’s “trade wars are easy to lose” tweet even as bond yields stabilized just above 2.80%. The euro found some support amid profit taking on shorts; The yen rose versus all G-10 peers and advanced as much as 0.9% against the dollar to a 15-month high of 105.28; the yen had climbed initially on risk-off sentiment spurred by concerns over U.S. trade protectionism. The Norwegian krone rallied to a one-month high against the euro after the central bank cut its inflation target to 2% from 2.5%. The pound held steady ahead PM May’s Brexit speech later in the day

In other overnight news, Special Counsel Robert Mueller is reportedly compiling a case against Russians who carried out hacking and information leaking which was intended to hurt Democrats in 2016 election.

There were also reports that White House is said to be preparing to replace Trump National Security Adviser McMaster. However, NSC spokesman later stated that US President Trump labeled the story related to the departure of National Security Adviser McMaster as fake news.

Over in the UK, PM May said Brexit deal must give UK control of its border, laws, and money, while she added they will place ‘5 tests’ on the Brexit deal. Meanwhile, the UK Cabinet is said to be in dispute regarding text ahead of PM May’s key Brexit speech, while there were also reports that UK PM May will not commit to mirroring EU regulations.

Elsewhere, oil declined amid concerns about increasing U.S. crude production, while copper headed for a two-week low as most industrial metals fell. Commodity newsflow has been dominated by Trump’s announcement on import tariffs for steel and aluminum. Aluminum futures fell 0.5%, while Shanghai steel prices 5-day rally came to a halt amid fears that the tariff plan could lead to a glut. Precious metals hover around yesterday’s high as risk-off flows support gold, alongside the softer USD. WTI and Brent crude futures trending lower this morning with prices dictated by the risk-off sentiment. Levels to the downside for Brent which may over some support is situated at USD 63.19 (yesterday’s low) at USD 61.75.

On today’s calendar, Foot Locker is among a handful of companies set to report earnings. The University of Michigan sentiment is expected on the macro side.

Market snapshot

  • S&P 500 futures down 0.4% to 2,665.25
  • STOXX Europe 600 down 1.3% to 370.17
  • MXAP down 0.8% to 174.38
  • MXAPJ down 0.9% to 571.54
  • Nikkei down 2.5% to 21,181.64
  • Topix down 1.8% to 1,708.34
  • Hang Seng Index down 1.5% to 30,583.45
  • Shanghai Composite down 0.6% to 3,254.53
  • Sensex down 0.4% to 34,046.94
  • Australia S&P/ASX 200 down 0.7% to 5,928.90
  • Kospi down 1% to 2,402.16
  • German 10Y yield fell 3.1 bps to 0.613%
  • Euro up 0.07% to $1.2275
  • Italian 10Y yield fell 2.7 bps to 1.679%
  • Spanish 10Y yield fell 1.7 bps to 1.49%
  • Brent Futures down 0.2% to $63.70/bbl
  • Gold spot up 0.1% to $1,317.76
  • U.S. Dollar Index down 0.3% to 90.10
  • Bulletin Headline Summary from RanSquawk

  • European bourses firmly in the red following the sell-off seen in Asia and Wall St. with 85% of the Stoxx 600 in the red after Trump’s aluminum and steel tariffs spooked markets
  • The Dollar is on the backfoot again with the DXY unable to extend its recent rebound to or through 91.000
  • Looking ahead, highlights include Canadian GDP, Baker Hughes, BoE’s Carney and UK PM May’s Brexit speech
  • Top Overnight News

  • The official response in China, the world’s largest steel producer, to the announced U.S. tariffs was muted; Foreign Ministry spokeswoman Hua Chunying merely said in Beijing Friday that China urges the U.S. to follow trade rules
  • The EU will consider imposing its own “safeguard” tariffs on imports of steel and aluminum in response to President Trump’s decision to levy national security tariffs, the Financial Times reports, citing EU Trade Commissioner Cecilia Malmstrom as saying in an interview
  • The Bank of Japan will start thinking about how to exit its massive monetary stimulus program around the fiscal year starting in April 2019, Governor Haruhiko Kuroda said Friday, marking the first time he’s provided any clear guidance on timing for normalizing policy
  • Norway lowered the inflation target of its central bank to 2 percent from 2.5 percent, the Finance Ministry said in a statement. The government also said that inflation targeting shall be forward-looking and flexible
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