More dominant service sector readings are offsetting the gloom – with euro zone surveys on Wednesday showing the overall business activity signal still expanding last month and only marginally below forecast as the Paris Olympics seemed to lift the mood.
Still, the factory wobble seems to have been enough to knock back the stocks again as the S&P500’s 2% loss on Tuesday clocked its worst day in a month and the VIX volatility gauge jumped back above its long-term averages.
Adding to the angst was a near 10% drop in artificial intelligence bellwether Nvidia, its worst day since April and marking its biggest ever one-day loss in market value with a $279 billion wipeout.
The stock lost another 1% out of hours overnight after Bloomberg reported the U.S. Department of Justice has sent a subpoena to Nvidia as it deepens its probe into the AI heavyweight’s antitrust practices.
Stocks around the world were caught in the slipstream on Wednesday, with Japanese, Taiwanese and Korean markets all suffering 3-4% swoons.
European stocks lost another 1% and Wall St stock futures remained slightly in the red.
With growth clouds nudging up Federal Reserve easing expectations, there was some relief for global investors from the rally in Treasuries – sustaining the newly negative correlation between stocks and bonds that re-emerged last month.
The chances of a Fed rate cut of as much as 50 basis points rose to about 40%, with 104bps now priced for the year.
Two-year Treasury yields plunged to 3.83% – their lowest since May last year – and 10-year yields ebbed too.
The bond rally was encouraged by a sharp drop in oil prices – which were hit by worries about global manufacturing, a likely resumption of Libyan supply after the recent outage and expectations of an increase in overall OPEC output next month.
U.S. crude prices fell below $70 per barrel for the first time since Jan. 2 and year-on-year price drops are now running at close to 20%.
The dollar index, which hit a two-week high on Tuesday, slipped back again. And there was little sign of a renewed “safety bid” in the likes of gold or Bitcoin, which both fell today.
Japan’s yen was slightly firmer after this week’s latest reiteration from the Bank of Japan that it plans to continue tightening.
And the Canadian dollar found a foothold as it awaits another Bank of Canada interest rate cut later today – the third of the year so far even before the Fed gets going.
