European stocks retreated yesterday, arresting six straight days of global equity gains and offsetting Asia's early rally, as investors refocused on the economic problems facing new US President-elect Barack Obama.
The widely-expected victory for Democrat Obama was confirmed by early results from Tuesday's US Presidential elections. The news lifted Asia stocks almost 2 per cent to three-week highs, but European bourses lost more than 2 per cent in early trading and Wall St futures looked set to open lower.
Democrats increased their majorities in both Houses of Congress, but appeared to be falling short of picking up the nine Senate seats needed to reach a 60-seat majority that would give them the muscle to defeat Republican procedural hurdles.
Analysts said the results would now see investors take stock of the new political and economic landscape after several days in which global markets have recovered from the extreme of the recent credit-related shock and stock indices across the global have bounced more than 20 per cent from October troughs.
While financial market tensions have eased considerably in November, the global economic slowdown caused by this year's intense banking crisis has yet to play out.
"The market is maybe reflecting the hard work ahead and difficult economic circumstances new President Barack Obama has inherited," said Keith Bowman, analyst at Hargreaves Lansdown.
Crude oil prices fell 4 per cent yesterday and the US dollar recovered some of Tuesday's biggest one-day loss against the euro since the latter's launch in 1999.
The October US employment report on Friday will likely highlight the economic challenge facing Obama, with forecasts of non-farm payroll losses of up to a quarter of a million. While global market movements were largely related to position adjustments after a few volatile weeks, some analysts focused on sectoral impacts.
"There's been a bit of profit taking after the fantastic rise since the market bottomed out last week," said Jim Wood-Smith, head of research at Williams De Broe in Exeter.
"Obama is seen as anti-big oil so the market is seeing reason to take profit in oil majors."
This concern added to the pressure on energy stocks from the drop in crude oil prices. BP, Royal Dutch Shell, BG Group and Cairn Energy all fell between 2.5 and 4.7 per cent.
"In the last (few) days we have seen quite significant gains, a breather is nothing surprising," said Tammo Greetfeld, equity analyst at UniCredit in Munich in Germany.
By 10 a.m. GMT, world stock defined by the MSCI's global index was down 0.2 per cent. The pan-European FTSEurofirst 300 index was down 2.3 per cent, reversing earlier gains across Asia that included a rally of more than 4 per cent in Tokyo.
At 10 a.m. GMT futures for the S&P 500 index, DJ Industrial Average index and Nasdaq 100 index were down 1.5-2.0 per cent.
The financial crisis continued to loom large in Europe and battered banks were the heaviest weight. BNP Paribas shed 2.6 per cent after saying its third-quarter net profit more than halved due to higher provisions tied to the upheavals.
HSBC lost 2.9 percent and BBVA was 1.3 per cent lower.
The new Obama administration, which takes office in January, will face the world's worst financial crisis since the Great Depression, and a potentially steep slowdown in global growth that has pounded markets from Tokyo to Frankfurt to New York.
The gloomy economic data stream was also relentless. Service sector activity in the eurozone touched a fresh decade low in October, according to final data released yesterday.
The final Markit Eurozone Purchasing Managers' Index for companies ranging from banks to cafés slumped to 45.8 - the lowest in the survey's 10-year history. That is well below the flash estimate and economists' forecasts of 46.9, and sharply down from September's 48.4.
"The bottom line is that economic fundamentals in the US are deteriorating faster than the market can keep up with. And there is very little an Obama administration can do to shield Asia from the effects of this downturn," said Kirby Daley, a senior strategist for Newedge Group in Hong Kong.
The dollar recovered almost 1 per cent against a basket of major currencies, regaining some of the prior day's losses when investors searched for higher yielding currencies.
Obama's win "is arguably likely to prove more positive for foreign markets, given the perception that he will be stronger in terms of dealing with US economic problems, is seen more favourably by foreigners generally, and is less likely to follow the policies of President Bush," Calyon said in a report.
But in a reminder of the huge government bill the new US administration will face after repeated financial and economic rescues of recent months, US Treasury prices fell after Obama's win.
Strategists said investors were looking to the US Treasury's announcement later today of details of the government's quarterly refunding.
"The market is bracing itself for a big refunding next week. The Treasury has got a lot to do," said Padhraic Garvey, rate strategist at ING in Amsterdam.
Gold was trading at $753.65 an ounce, down almost $10 from its notional New York close on Tuesday.
The widely-expected victory for Democrat Obama was confirmed by early results from Tuesday's US Presidential elections. The news lifted Asia stocks almost 2 per cent to three-week highs, but European bourses lost more than 2 per cent in early trading and Wall St futures looked set to open lower.
Democrats increased their majorities in both Houses of Congress, but appeared to be falling short of picking up the nine Senate seats needed to reach a 60-seat majority that would give them the muscle to defeat Republican procedural hurdles.
Analysts said the results would now see investors take stock of the new political and economic landscape after several days in which global markets have recovered from the extreme of the recent credit-related shock and stock indices across the global have bounced more than 20 per cent from October troughs.
While financial market tensions have eased considerably in November, the global economic slowdown caused by this year's intense banking crisis has yet to play out.
"The market is maybe reflecting the hard work ahead and difficult economic circumstances new President Barack Obama has inherited," said Keith Bowman, analyst at Hargreaves Lansdown.
Crude oil prices fell 4 per cent yesterday and the US dollar recovered some of Tuesday's biggest one-day loss against the euro since the latter's launch in 1999.
The October US employment report on Friday will likely highlight the economic challenge facing Obama, with forecasts of non-farm payroll losses of up to a quarter of a million. While global market movements were largely related to position adjustments after a few volatile weeks, some analysts focused on sectoral impacts.
"There's been a bit of profit taking after the fantastic rise since the market bottomed out last week," said Jim Wood-Smith, head of research at Williams De Broe in Exeter.
"Obama is seen as anti-big oil so the market is seeing reason to take profit in oil majors."
This concern added to the pressure on energy stocks from the drop in crude oil prices. BP, Royal Dutch Shell, BG Group and Cairn Energy all fell between 2.5 and 4.7 per cent.
"In the last (few) days we have seen quite significant gains, a breather is nothing surprising," said Tammo Greetfeld, equity analyst at UniCredit in Munich in Germany.
By 10 a.m. GMT, world stock defined by the MSCI's global index was down 0.2 per cent. The pan-European FTSEurofirst 300 index was down 2.3 per cent, reversing earlier gains across Asia that included a rally of more than 4 per cent in Tokyo.
At 10 a.m. GMT futures for the S&P 500 index, DJ Industrial Average index and Nasdaq 100 index were down 1.5-2.0 per cent.
The financial crisis continued to loom large in Europe and battered banks were the heaviest weight. BNP Paribas shed 2.6 per cent after saying its third-quarter net profit more than halved due to higher provisions tied to the upheavals.
HSBC lost 2.9 percent and BBVA was 1.3 per cent lower.
The new Obama administration, which takes office in January, will face the world's worst financial crisis since the Great Depression, and a potentially steep slowdown in global growth that has pounded markets from Tokyo to Frankfurt to New York.
The gloomy economic data stream was also relentless. Service sector activity in the eurozone touched a fresh decade low in October, according to final data released yesterday.
The final Markit Eurozone Purchasing Managers' Index for companies ranging from banks to cafés slumped to 45.8 - the lowest in the survey's 10-year history. That is well below the flash estimate and economists' forecasts of 46.9, and sharply down from September's 48.4.
"The bottom line is that economic fundamentals in the US are deteriorating faster than the market can keep up with. And there is very little an Obama administration can do to shield Asia from the effects of this downturn," said Kirby Daley, a senior strategist for Newedge Group in Hong Kong.
The dollar recovered almost 1 per cent against a basket of major currencies, regaining some of the prior day's losses when investors searched for higher yielding currencies.
Obama's win "is arguably likely to prove more positive for foreign markets, given the perception that he will be stronger in terms of dealing with US economic problems, is seen more favourably by foreigners generally, and is less likely to follow the policies of President Bush," Calyon said in a report.
But in a reminder of the huge government bill the new US administration will face after repeated financial and economic rescues of recent months, US Treasury prices fell after Obama's win.
Strategists said investors were looking to the US Treasury's announcement later today of details of the government's quarterly refunding.
"The market is bracing itself for a big refunding next week. The Treasury has got a lot to do," said Padhraic Garvey, rate strategist at ING in Amsterdam.
Gold was trading at $753.65 an ounce, down almost $10 from its notional New York close on Tuesday.