Market News

Investment markets experienced a return to volatility in February 2018

After a strong start to the year, global stock markets were sold off in early February on the back of a stronger-than-expected wage growth figure in the US, which alarmed markets.

It might seem counter-intuitive that good economic news would trigger a share market fall, but markets suddenly became worried that the US economy, boosted by the Trump Administration’s tax cuts, was overheating – which could force the Federal Reserve’s hand on the trajectory of interest-rate rises. What appeared to spark the fall was news that the average hourly earnings in the US was up 2.9% for the 12 months to January, much higher than expected, which stoked the fears of rising inflation. The US markets responded with a week of falls, including a one day 1,178 point slump, which was the Dow’s biggest one-day point drop in history. The Dow Jones plunged more than 3,200 points, or 12%, in just two weeks.

But from mid-month, the US markets rebounded, at one point recovering about three-quarters of its losses. February ended as dramatically as it began, with the Dow Jones dropping 680 points during the month’s final two days, leaving it down about 1,600 points from the record high in late January. In the wash-up, both the Dow Jones and the broader S&P 500 had their worst month in two years. The Dow Jones ended February down 4%, the S&P 500 index fell by 3.7%.

European markets followed their US counterparts lower in the first half of February, bouncing back later in the month. Germany’s DAX index lost 5.7%, the CAC 40 in Paris fell 2.9% and the Euro Stoxx 600 index shed 3.8% on a total-return basis. The UK’s FT-100 index was down 4%.

The stock market sell-off also flowed into Asia, where Japan’s Nikkei index lost 4.4%, Hong Kong’s Hang Seng index shed 6.2%, the KOSPI in South Korea gave up 5.4% and the Shanghai Composite index lost 6.4%.

In Australia, against the headwind of the global market falls, the S&P/ASX 200 Accumulation index managed a 0.4% rise for February. This result was also helped by expected solid company profit results and aided by the Australian dollar shedding 3.6% against the US currency in February, closing the month at 77.62 US cents. On the commodities front, iron ore gained 7.4%, Australian thermal (electricity) coal was down 0.1% and coking (steelmaking) coal was flat for the month. Gold was down 2% in US$ terms, while Brent crude oil lost 4.7% and West Texas Intermediate crude eased 4.8%.