Equity markets started the month in the same vein they finished January. Fear is beginning to take hold as the Vix closes above 20 for the first time in 4 months. As I pointed out the other day, this has been the level at which equity markets have often stabilised over the past couple of years. The catalyst for the fall on Monday was a much weaker than expected ISM manufacturing survey. The number came in at 51.3 against expectations of 56. The number was so off beat one has to assume it was an anomaly — hopefully we won’t see this weakness repeated from other US macro data in the coming months. On a positive note, the rhetoric from those who contributed to the survey blamed adverse weather conditions for the weakness, but remain upbeat for the coming months.
On Wednesday we get the US ISM service sector survey, after Monday’s manufacturing survey, analysts will be eagerly waiting to see a more robust report. I would imagine analyst expectations for this report would now be lowered ahead of its release.
US treasury prices continue to rise on Monday; the yield on the 10-year bond is now back to 2.58%. Similarly UK gilt yields have fallen back, not quite as far, the UK 10-year equivalent currently yields 2.69%. Other asset classes have remained stable on Monday, the gold price closed just above $1250, and the US dollar largely unchanged against its basket of other currencies.
The FTSE 100 after today’s move has retreated back to the bottom end of its 6-month trading range and coincidently back to its 200-day moving average. Today’s move will make the correction for the year close to 5% for both the FTSE 100 and the S&P 500. The S&P 500 has now given up 4 months of gains.
Since 2009, there have been approximately 11 market corrections of note, 5 have been between 5-6%, the two largest were mid-2010 at 16% at the height of the euro fears, the other approached nearly 20% in August 2011.