Risk sentiment sours as European markets fall to lowest level since 2016

After consolidating for the past week or so, stock markets are coming back under pressure today with European benchmarks falling to their lowest level in almost 2 years. You have to go back to December 2016 to find a lower level for the Eurostoxx 600 and what began as a correction on concerns surrounding the Italian budget is now in danger of becoming a full blown bear market. The benchmark is down by around 13% so still has some way to go before it the 20% drop that is widely considered a bear market, but with price firmly below the 200 day SMA whichever way you look at it the market is in a downtrend.

Dead cat bounce in Chinese stocks?

Here in London, the FTSE has reversed after a bright start to the week with the index back below the 7000 mark. The largest rally in the Chinese stock market in almost 3 years on Monday had boosted mining companies listed in London, but this jump higher now looks like it may have been a false dawn with hares in Shanghai erasing the gains overnight. US futures are called to open sharply lower and unless they come in buying aggressively across the Atlantic then there could well be more downside ahead.

Gold and Yen rise on risk-off flows

Looking at other asset classes the latest bout of selling in stocks looks to have had a clear risk-off impact, with perceived safe havens such as the Japanese Yen and Gold amongst the biggest beneficiaries. The price of Gold bullion has moved up to its highest level in 3 months at $1235 as investors are clearly growing concerned that the recent weakness in stocks may be a harbinger of things to come. The European Commission is set to meet to discuss Italy’s latest budget proposals but it still seems unlikely that either side will back down. With Brexit negotiations, the potential for disruption in the Middle East due to the latest Saudi actions and the possibility of a pro-market Republican administration losing control of one of the houses in the US there remains plenty more that could weigh on investor sentiment and after several years of strong returns the outlook is growing increasingly worrisome.