3rd Mar 2014 17:26
LONDON (Alliance News) - Stock markets tumbled around the world Monday, as investors sold equities in favour of safe haven assets such as gold and the US dollar amid concern over the fast moving situation in Ukraine. Although macro economic data releases have been broadly positive, stock indices, including the FTSE 100, have suffered the worst day of losses since the sell-off caused by emerging market growth concerns in late January.
Although UK shares have moved off their midday lows, the FTSE 100 has closed at a two-week low, down 1.5% at 6,708.35. The FTSE 250 has closed down 2.1% at 16,374.84, and the AIM All-Share has closed down 1.2% at 822.37.
Major European Markets have been hit even harder, with the CAC 40 down 2.7% and the German DAX shedding a massive 3.4%.
"The German DAX has borne the brunt of European market losses today given that German companies do an awful lot of business with Russia," said CMC Markets chief market analyst Michael Hewson.
US stocks, which were continuing to push up to new all-time highs at the end of last week, are also firmly lower after the European market close, with the DJIA, the S&P 500 and the Nazdaq Composite all close to 1% lower.
At the epicentre of Monday's investor concern, the Russian stock market closed down 10.8%, and the Russian rouble reached its lowest ever level against the US dollar, despite the Russian central bank trying to support the currency by raising interest rates to 7% from 5.5% overnight.
"Escalating tensions between Russia?s interventions in Ukraine have dragged global markets lower as investors dump riskier assets in search for safe havens," said Spreadex financial sales trader Lee Mumford.
The price of oil has jumped sharply in response to the potential escalation of unrest in the region. Russia is the worlds largest oil producer, according to International Energy Agency, exporting over 5 million barrels per day to Europe alone. A large proportion of that oil passes through Ukraine on its way to Europe. Analysts are therefore unsurprised by Monday's USD2.5 spike in the price of oil. Brent Crude now trades at USD111.65 per barrel, up 2.3% Monday, making new 2014 highs.
Gold is also up more than 2% as demand increased sharply for the traditional safe haven asset. Currently trading at USD1,353.60 per ounce, the yellow metal is at its most expensive since late October 2013. Silver has also followed higher, currently up 1.7% at USD21.60 per ounce.
The spike in precious metal prices has sent the gold miners to the top of the gainers table Monday, with Randgold Resources the biggest FTSE 100 gainer, with Fresnillo also higher, up 4.3% and 1.9%, respectively. In the FTSE 250 African Barrick Gold was the top gainer, up 5.0%.
Some analysts are already starting to question the longevity of Mondays' correction however, suggesting that, unlike the equity sell off that took hold in late January, the risk of contagion here is small. "The shock (in Ukraine) is mostly localised to Eurasia and should stay there," said Societe Generale senior strategist Sebastien Galy.
Nigel Green, Chief Executive of deVere Group, a financial advisory firm with USD10 billion under management, said "I believe that this tumble will be judged by history as a ?bump in the road? as markets will recover quickly. I?m not worried that we are about to slump into another global recession as a consequence of the deepening crisis in Ukraine."
Indeed with headlines from Ukraine in focus it would have been easy to overlook the day's data releases, which were broadly positive in the west, but also confirmed a slowdown in the Chinese manufacturing sector, which could be a much bigger long term problem for global markets than the current situation in Ukraine. "Weaker Chinese PMIs matters far more than Ukraine," said Soc Gen's Galy.
The HSBC Chinese manufacturing PMI came in at 48.5 for February, confirming expectations of a fall from 49.5 in January.
The combined effect of Ukraine-driven risk aversion and the contraction of Chinese manufacturing saw the industrial metals stocks underperform the most Monday, with Evraz PLC down more than 12% and Ferrexpo down almost 8%.
UK data was fairly positive Monday, with the Markit manufacturing PMI expanding unexpectedly to 56.9 in February, from 56.7 in January. Economists had expected a slight slowdown to 56.5.
Mortgage approvals in the UK reached their highest level since 2007. British lenders approved 76,947 mortgages in January, up from 72,798 in December, exceeding analyst expectations of 73,500.
Meanwhile, net lending to individuals in the UK fell to GBP2.1 billion in January, from GBP2.3 billion in December, missing economist expectations of an expansion in lending to GBP2.5 billion. Consumer credit expanded to GBP0.66 billion in January, from 0.58 billion in December, although economists had expected a further expansion to GBP0.7 billion.
The second reading of European manufacturing PMI's for February was broadly positive, with all the major European countries, bar Italy, exceeding economist expectations. Germany recorded 54.8 in February, up from 56.5 in January and exceeding expectations of 54.7. Italy's growth slipped slightly to 52.3, down from 53.1 in January and missing expectations of 52.8, although still recording expansion. Coming in under 50.0, at 49.7, France's manufacturing sector is still in contraction, although the reading is slightly improved from the 49.3 recorded in January.
The Eurozone composite PMI was revised up to 53.2 in February, from the preliminary reading of 53.0, although confirming a slowdown from 54.0 in January.
Both the pound and the euro have held up well against the dollar in Monday's scramble to safety; both currencies are close to flat on the day at USD1.6718 and USD1.3764, respectively.
"We have observed frequently that it (the euro) is no longer vulnerable to general risk aversion and we can see how its regional safe haven status is reinforced," said Societe Generale strategist Kit Jukes.
Financial stocks underperformed Monday, especially those with emerging market exposure. Aberdeen Asset Management dropped 4.3%, RSA Insurance fell 4.3% and Schroders closed down 4.6%.
William Hill was the worst performing blue chip stock, closing down 4.8%, retracing all the gains made on Friday. Monday's move makes the book maker the second smallest FTSE 100 stock by market capitalisation and puts the company in line for possible deletion from the leading index at the upcoming index review, which is calculated on Tuesday's closing prices.
HellermanTyton Group is one stock that performed well, independent of the wider market sentiment. The producer of cable products closed up 2.6% after announcing full-year results. Analysts are forecasting sales to continue to grow as the global demand for data, and therefore cabling, increases.
Full-year results are scheduled Tuesday from Serco, Fresnillo, Glencore Xstrata and Perform Group amongst others.
In a quieter day for economic data, the UK construction PMI for February, released at 0930 GMT, will provide the morning focus. Economists expect a slight slowdown in growth to 63.0 in February, from 64.6 in January.
By Jon Darby; [email protected]; @jondarby100
Copyright © 2014 Alliance News Limited. All Rights Reserved.
Related Shares:
SchrodersWMH.LSercoRandgold ResourcesEvrazRSA.LFerrexpoFresnilloGlencoreADN.L