The selloff in equity markets around the world that greeted the New Year has continued into February as investors flee risk assets and seek the relative safety of cash. US markets have fared badly particularly with banking stocks being hit hard as investor concerns over reduced profitability in a moribund economy come to the fore.The stocks of Bank of America and Morgan Stanley are off 27% and 29% respectively since the beginning of the year while Citigroup is down 27%.
Data has been flowing thick and fast since the start of the year and much of it, from wherever it emanates, is gloomy.
“Last week’s US nonfarm payrolls for January missed on the top line with just 151,000 jobs created against expectations for 200,000+ and while it wasn’t enough to draw a conciliatory reaction from Federal Reserve officials, it was enough to see US equities selloff sharply as markets deemed unemployment to be the ‘last shoe to drop’,” said Yoshi Fujikawa, chief economist at Resona Corporate Partners.
Investors seem fixated on China and oil prices but Resona Corporate Partners notes that talk of further interest rate hikes this year are all but non-existent.
“The tail end of last year was awash with speculation about how many interest rate hikes the Fed would introduce in 2016 but after the start to the year we’ve had, people are now talking about when the Fed will follow the example of the Bank of Japan and introduce negative interest rates to kick-start the economy,” concluded Fujikawa.
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