Markets tank as fear grows

Quick Recap

For the third day in a row stocks have been under pressure in the US and Europe. It seems the convergence of a number of peripheral drivers combined to see another acute bout of risk aversion which saw the S&P 500 drop 2.11% – its worst day since 2014. That’s hurt the local market as well with the SPI 200 September futures down 78 points after yesterday’s big fall on the physical market.

Raiko Shareef, BNZ’s Wellington-based currency strategist wrote this morning that after Shanghai stocks collapsed into the close yesterday, Kazakhstan dropped the peg on its currency, which promptly lost 25% of its value. This is putting further pressure on other pegs such as the one in Saudi Arabia while the political instability in Turkey is keeping pressure on the lira. And, he says, don’t forget “North and South Korea exchanged artillery fire across the DMZ, in what is being called the most serious exchange since 2010″.

So it’s no surprise that risk aversion heightened overnight and traders sold stocks, bought bonds, bought gold and kept pressure on the Aussie dollar.

What is mildly surprising though is that the US dollar is weaker. Not against the yen, that is normal in times of increased investor uncertainty. But it’s weak against the euro which is up above 1.12. Part of that could be the comments, in a speech in Asia yesterday, by Minneapolis Fed president Narayana Kocherlakota that perhaps the Fed needs a higher inflation target. That implies less aggressive rate hikes.

Elsewhere, the Greek PM called the snap election many expected. No one really cares though, too many other things to worry about now.

The overnight scoreboard (7.13am AEST):

• Dow Jones -2.06% to 16,990
• Nasdaq -2.82% to 4,877
• S&P 500 -2.11% to 2,035
• London (FTSE 100) -0.56% to 6,367
• Frankfurt (DAX) -2.34% to 10,342
• Tokyo (Nikkei) -0.94% to 20,003
• Shanghai (composite) -3.39%
• Hong Kong (Hang Seng)-1.77% to 22,757
• ASX Futures overnight (SPI September) -70 to 5,166
• AUDUSD: 0.7335
• EURUSD: 1.1238
• USDJPY: 123.36
• GBPUSD: 1.5691
• USDCAD: 1.3080
• Nymex Crude (front contract): $41.14
• Copper (US front contract): $2.329
• Gold: $1,152
• Dalian Iron Ore (September): 444(it’s denominated in CNY folks)