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While you were sleeping: Equities, Treasuries slide as volatility returns

Friday 9th February 2018

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Equities on both sides of the Atlantic declined, as did government bonds, while commodities including oil, gold and copper also slid amid concern about higher interest rates. 

Volatility returned to skittish financial markets as investors reassess valuations as they adjust their expectations for the pace of inflation and interest rate increases by the Federal Reserve. 

“If they raise rates more or faster, more hikes, that raises a little bit of concern because right the the economy has been all gas no brakes,” Matt Schreiber, president and chief investment strategist at WBI Investments, told Bloomberg. “The Fed’s kind of this wild card because it could really pump the brakes pretty hard and cause the cost of borrowing to go up and really cause the economy to stall.

In 11.22am trading in New York, the Dow Jones Industrial Average dropped 1.6 percent, while the Nasdaq Composite Index also shed 1.6 percent. In 11.08am trading, the Standard & Poor’s 500 Index declined 0.9 percent.

Wall Street’s fear gauge—the CBOE Volatility Index or the VIX—rose 4.5 percent to 28.98 as of 11.16am in New York after earlier in the session falling as low 24.41.

“Volatility has eased but by no means is it low. It is still far above the long-term average and unease about higher interest rates remain,” Randy Frederick, vice president of trading and derivatives for Charles Schwab, told Reuters.

“The outlook for the rest of the year remains positive and fundamentals remain strong. If the VIX falls below 20, then we should see some buying,” according to Frederick.

The Dow slid, led by declines in shares of Intel and those of Home Depot, recently down 3 percent and 2.7 percent respectively. Shares of Apple rose, recently up 0.5 percent and was the only stock in the Dow to trade higher. 

US Treasuries declined, sending yields on the 10-year note three basis points higher to 2.87 percent.

“There’s some big-money players that have really leveraged to the low rates forever, and they have to unwind those trades,” Doug Cote, chief market strategist at Voya Investment Management, told Bloomberg. “They could be in full panic mode right now.”

Meanwhile, corporate results helped some shares buck the trend. Twitter jumped, trading 17 percent higher as of 11.21am, after its quarterly results—which include a profit for the first time—surpassed analysts’ expectations.

"I think they’ve come a long way,” Richard Greenfield, an analyst at BTIG, told Bloomberg. "The product has dramatically improved. They’re doing a better job of showing the right tweets to the right people at the right time." Greenfield added that "consumer or user happiness is making advertisers want to be there."

Shares of Tyson Foods also rose, 0.9 percent higher as of 11.26am in New York, after the US meat processor posted quarterly results that surpassed analysts' expectations, bolstered by its prepared foods business, and upgraded its full-year outlook.

Tyson lifted its adjusted earnings per share guidance for fiscal 2018 to between US$6.55 and US $6.70, which includes a benefit from a lower tax rate but excludes one-time cash bonuses, it said in a statement. That's up from a previous estimate for between US$5.70 and US$5.85.

"We drove solid results in each of our segments—beef, pork, chicken and prepared foods," Tom Hayes, Tyson's chief executive officer, said in a statement. “We grew topline sales, with our retail and food service sales both outpacing the industry.

“As we look to the long-term, we’re confident in our ability to continue growing the business," Hayes noted. "Demand for protein continues to rise, and we’re well-positioned to take advantage of that opportunity—and to fulfill our aspiration of sustainably feeding the world.”

Shares of Grubhub soared, trading 27.5 percent higher as of 11.30am in New York, as the online food delivery company posted quarterly results that beat analysts’ estimates and announced Yum Brands agreed to buy a US$200 million stake in the company.

Grubhub said it teamed up with Yum in a new partnership to drive incremental sales to KFC and Taco Bell restaurants in the US through online ordering for pickup and delivery.

The partnership with Yum "will accelerate the expansion of our delivery network and amplify our diner acquisition efforts, raising consumer awareness of online ordering and driving more volume for all restaurants across our platform," Grubhub CEO, Matt Maloney, said in a statement.

In Europe, the Stoxx 600 Index traded 0.7 percent weaker. In late-afternoon trading, Germany’s DAX Index declined 2.2 percent, France’s CAC40 Index retreated 1.5 percent, while the UK’s FTSE 100 index fell 1.1 percent.


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