Live Blog

Markets Plunge After U.S. Stocks Fall Most in More Than Six Years

Monday February 5, 2018
Welcome to this TOPLive coverage of Asian markets, as they respond to the plunge in U.S. stocks. The Dow Jones Index was down over 1,500 points at one point over Asia's night -- we'll see what response that brings as Asia's Tuesday trading gets going.
Even before the opening bell in the U.S., Monday looked like a bad day for the U.S. stock market, write my colleagues Lu Wang and Jeran Wittenstein.

But not even pessimists were prepared for the white-knuckled ride that for 15 harrowing minutes sent the Dow Jones Industrial Average tumbling almost 1,600 at its lowest point -- its biggest intraday point decline in history.

Read more of their story here.
The plunge in U.S. stocks on Monday just after 3 p.m. went beyond a normal reaction to economic circumstances and had elements of a liquidity-driven selloff. Dennis Debusschere, head of portfolio strategy at Evercore ISI, said we can call it a flash crash, where the withdrawal of stock orders rapidly exacerbates price declines.
At its worst level at 3:10 p.m. in New York the point loss in the Dow Jones Industrial Average -- 1,597.08 -- was greater than on May 6, 2010, the day of the original flash crash when the Dow’s decline was just short of 1,000 points. The day’s percentage decline topped out at 6.3 percent, compared with 9.2 percent in the 2010 event, which spurred the creation of a series of safeguards meant to prevent a repeat.
Traders in Japan are buckling in for what looks set to be a tough session. Futures indicate losses of ~5% for the Nikkei 225. New Zealand is closed today for a holiday but Australia's equity market is already open, down 2.8%.
Right now, the question is whether the current rally in U.S. equity-index futures will hold and whether or not it is a sign of stabilization. S&P 500 e-minis are up 0.3%.
The worst day for U.S. equities in 6 1/2 years wiped out $1.25 trillion from the value of American stocks in the frenzied selling. The 4.1 percent drop in the S&P 500 left the market cap of U.S. stocks at around $29 trillion.
Monday in the U.S. was a bad day for traders working the floor of the New York Stock Exchange.
Photographer: Michael Nagle/Bloomberg
We'll see how Asia responds and then of course the bigger question is -- just how long-term and substantive is this market move... a blip or the start of a prolonged tumble.

As we anticipated, it's been a particularly brutal start to Tuesday trading for Japanese equity bulls. The Nikkei 225 is now down 4.3% and the Topix index is down 4.1%.
Most stocks on Japan's Nikkei 225 are trading now, and unsurprisingly, they're all in the red. In fact, almost 40 of them are down 5% or more, with Sumitomo Electric Industries Ltd. leading losses.
As Sarah points out, Japan equity volatility is soaring. We are not quite seeing the levels we saw over Asia's night on the VIX index, but still -- here's another take on the Nikkei Stock Average Volatility Index -- this shows you how today's move compares over the longer term. A brutal change.

With Tuesday's Asia markets getting going, here's how the Bloomberg terminal is displaying the current situation for equities (as of 9:25am in Tokyo) -- stocks in Japan, Korea and Australia all open, all well down...
Meanwhile, over in Australia the latest economic data has given the currency a nudge lower. Retail sales missed estimates ahead of the Reserve Bank of Australia's interest rate decision later Tuesday. The Aussie traded down 0.1% at 78.70 U.S. cents.
As the selling continues, Japan's Topix index has breached a level traders consider technically oversold -- the first time since April 2017. The index rebounded following the breach last time.
So just what did happen in U.S. markets on Monday? As yet, no one seems quite sure. But, as my colleagues Sarah Ponczek, Elena Popina and Lu Wang write, sometimes the U.S. stock market seems like a giant science project, one that can quickly turn hazardous for its human inhabitants. Read our full story by clicking on the headline below.

Tetsuo Seshimo, a portfolio manager at Saison Asset Management Co. in Tokyo, doesn't feel panicky but notes the market sentiment isn't really for dip-buying either as prices wouldn't feel cheap compared to levels seen in September. He says:
"This isn't about Japan. It's hard to say before seeing what happens in overseas markets. People who were buying up shares this year were those playing into the momentum. Those people would be heart broken."
Many fund managers that the Bloomberg News team have spoken with over the past 24 hours are pointing out that, in their view, the dramatic moves in markets this week have not changed the outlook for the economy and earnings growth. As Peter Wilmshurst, who runs a global equities fund for Franklin Templeton from Melbourne, put it this morning:
"Overall, we've got a better fundamental economic and earnings picture which should be supportive of international equities, boosted by U.S. fiscal policy including tax cuts.''
So we're almost one hour into Tuesday trading in Tokyo and we see the Nikkei 225 still testing those session lows, down 4.7%. We are now off more than 10% from the high in January. It's hard now not to call this a correction.
Tuesday's markets in the world's No. 2 economy -- China -- open in just under 40 minutes, with stocks in Hong Kong tending to take to these sort of full-on market moves with gusto. Shares in the city have been among the best performers in Asia over the past 12 months, which means they have further to fall when meltdowns like this take place.

Mainland China could be different -- authorities there are sensitive to extreme fluctuations given the angst they can create for investors -- and mainland markets are dominated by individual, retail investors. Beijing has form when it comes to intervention.
Chinese stock futures haven't traded for a while, but those for the Hang Seng, Hang Seng China Enterprises Index (which tracks mainland Chinese shares listed in Hong Kong) and the FTSE China indexes are in the red after the moves overnight in the U.S.
One thing I've been pointing out to our viewers on Bloomberg's Daybreak Australia TV show this week is how short volatility trades perform under a time of market stress.

We've been so accustomed to an era of low volatility across equities, bonds and currency markets in recent years. That's attracted a ton of cash into those strategies.

As the VIX surged by a record 116% on Monday, plenty of that money ran for the exits. Many traders have pointed to that as being one reason for the sudden declines of such a severe magnitude for equities.
Thanks for following this coverage of Asia's markets. Here's a CATCHUP of where we are just now:
  • Markets across Asia have opened sharply lower after the record plunge in U.S. stocks on Monday
  • Japan's Nikkei 225 is currently down 4.5%, the Topix index down 4.4%
  • Australia's S&P/ASX 200 is down 2.6%
  • Over in South Korea, the benchmark Kospi is trading down 2.5%, while the Kosdaq is 4.2% lower
  • Markets in China and Hong Kong open in less then 30 minutes -- and look likely to also open sharply lower
Stocks aren't the only area where we're seeing carnage, good ole' Bitcoin has taken a serious bath, and is falling for a sixth session as the Asian day gets under way.

Backlash from regulators and accusations it's a speculative bubble are taking their toll. Like with equities, analysts aren't putting the move down to fundamentals, per se. Lucas Nuzzi, a senior analyst at Digital Asset Research, says:
"All that it took this time was a large lot of sell orders."
While Bitcoin is often compared with gold as a store of value, it sure hasn't behaved that way so far this year. Take a look at how it's done compared with spot gold (hint: gold is the one that's the straight line):
What did they know? As this rout was brewing last week, Chinese regulators were urging brokerages to ask investors with stock pledges to add to their collateral when shares slump below critical levels instead of closing out -- this is a way of softening the impact of any selloff.

It'll be interesting to see if this cushions the blow in mainland markets (which open in about 15 mins) and if the so-called national team -- state-backed Chinese funds called on to even out losses in times of market turmoil -- are active there today.

Mainland-traded stocks can also only fall a maximum 10 percent.
Chinese stock futures are sliding --- those on the Hang Seng, Hang Seng China Enterprises Index and the FTSE China are down more than 1.7 percent as we count down to the opens in Hong Kong and Shanghai (in about 10 minutes)
The Hang Seng China Enterprises Index --- this is the gauge of Chinese stocks listed in Hong Kong -- is down 4.5 percent in pre-market trading. It's particularly outperformed this year, racking up an improbable 19-day rally in the second half of January that brought it to its highest point since 2015.
Hong Kong and Chinese markets are now officially open -- and traders are probably wishing it was the Chinese New Year holiday already. Indexes including the Hang Seng and the Shanghai Composite are falling more than 1.5 percent.
Some interesting moves in the bond market today. After basking in the glow of gains as equity traders scrambled overnight, 10-year Treasury notes are falling a tad right now -- pretty understandable after a 14 basis-point drop in yields from a four-year high in the Monday session.

This revival in the bond safe-haven trade is consolation for debt-market bulls, who have been battered by expectations for a pick up in global growth and inflation, as well as the strong equity run.