The 100-point slide in the S&P 500 and the 1000-point drop in the Dow Jones Industrials yesterday spurred more bloodletting in Asia. The 1.8% drop in the MSCI Asia Pacific Index (for a 6.7% loss for the week) may conceal the magnitude of the regional losses. At one point the CSI 300 of the large Chinese mainland shares was off more than 6% before closing off 4.3% (and 10% for the week). The H-shares index was down 3.9% and 12% for the week. The Nikkei was off 2.3% to bring its loss for the week to 8.1%. 

European markets are lower, but the losses are modest, perhaps helped by a recovery of US stocks. The S&P 500 is about 0.5% better in electronic trading. European markets are nursing 0.3%-0.4% losses. The Dow Jones Stoxx 600 is off 0.4% bringing this week’s loss to about 4%. Of note, the Italian stock market is off about 3.4% on the week and is the only G7 equity market that had managed to hold on to some gains for the year (~2.5%).  

The sliding equities is not offering the bond market much support. This seems unusual. Such large declines in equities are usually associated with safe-haven buying of fixed income. The generic 10-year US yield is unchanged on the week at 2.84%. The generic two-year yield is off two basis points compared with last week’s close, but is 18 bp higher than the week’s low set on Tuesday (near 1.94%). The 10-year benchmark yield in Germany is two basis point higher, while the UK benchmark is four basis points higher. The 10-year JGB was flat on the week coming into today’s session when the yield slipped 1.5 bp.  

There are a few economic data points today to note. First, the Monetary Policy Statement from the Reserve Bank of Australia softened the outlook for inflation and job (though revised the unemployment forecast to 5.25% by end of June 2019 from 5.5%) by suggesting it will take longer (“some time) before its targets are reached. The key takeaway is confirmation policy is on hold. Separately, home loans for December fell 2.3%, more than twice the decline expected and the November series was revised to 1.6% from 1 2.1% gain.