source from：WSJ
Markets U.S. Markets
Global Stocks Plunge After U.S. Selloff

Updated Feb. 6, 2018 4:17 a.m. ET
3 COMMENTS

The Dow’s biggest ever daily point plunge sent shock waves through global financial markets Tuesday, sparking steep selloffs in equity benchmarks from Tokyo to Madrid even as the U.S. market was poised to stabilize.

Markets in Japan and Hong Kong fell close to 5% as this year’s highflying sectors—technology, resources and financial shares—led the way lower. The Stoxx Europe 600 dropped 3.2% in the early minutes of trading, marking a fall of nearly 7% from its peak this year and wiping out all gains in the index since September.

Futures suggested U.S. stocks would stabilize, however, with Dow futures paring sharp losses earlier to trade flat and the S&P 500 set for a 0.8% opening advance.

Tuesday’s steep declines came after the Dow Jones Industrial Average dropped by around 1,600 points on Monday before paring losses and the Cboe Volatility Index, which measures expected market swings, spiked 115.6% higher in its biggest one-day jump on record, marking a sharp turnaround from the calm ascent that has enveloped equity markets in recent months.

Although there was no clear catalyst for Monday’s erratic trading in the U.S., analysts said recent worries about rising bond yields and higher inflation combined with elevated valuations, algorithmic trading, and an investor base that had grown somewhat complacent after an exceptional start to the year that drew record inflows into equity markets.

    ‘It’s pretty crazy.’
    —Chris Weston, chief market strategist at IG

“The pace we were setting was not sustainable,” said Dave Lafferty, chief market strategist at Natixis Investment Managers. “The global economy is doing fantastic, but what about that isn’t priced into stocks?” he said.

Trading volumes were high on Tuesday with retail investors joining in on the selling, taking volumes on a China retail-focused ETF to a nine-month high, according to RBC Capital Markets. Japan’s Nikkei Stock Average fell 4.7% and Hong Kong’s Hang Seng fell 5.1%.

Analysts said the tumult has been exacerbated by sales of exchange-traded notes tracking implied volatility, which had become a popular way of betting on whether the recent calm in global equities would continue.

Many institutional investors were pausing to see where markets settled before taking big positions, said Lee Porter, managing director for Asia Pacific at brokerage Liquidnet.

“We’ve been through such a prolonged period of low volatility, and it was a question of when, not if, it would end,” he said.

Pedestrians in Tokyo on Monday. Photo: robicho/EPA/Shutterstock

With that lull shattered, many ETFs betting that volatility would remain low have suffered wrenching declines.

Japanese investment bank Nomura said Tuesday it would close one such fund early after the underlying index plunged 80% Monday, hitting a condition for early redemptions.

“We apologize from the bottom of our hearts for causing great inconvenience for the holders,” the fund said in a statement.

In Hong Kong, money flooded in from mainland China through the Shanghai Stock Connect, which allows reciprocal investment of stocks between the two cities. Net inflows hit the highest level since April 2015, when the link’s daily trading limit was last triggered.
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Taiwan’s Taiex slumped 5%, the most in 6 1/2 years, while Australia’s S&P ASX 200 index dropped 3.2%.

As investors shed stocks, oil and base metals, assets considered market havens found some support. Gold was up 0.7% at $1,346 an ounce and the yen strengthened 0.1% against the dollar after rising 0.9% on Monday.

Yields on 10-year Treasury notes fell to 2.763% from 2.794% late Monday, after their biggest daily decline since September. Yields move inversely to prices.

Many analysts had attributed the start of the pullback in equity markets over the past week to climbing bond yields and expectations of tighter monetary policy, but 10 year yields have now erased most of February’s gains.

The downturn in markets also bled into expectations for how quickly the Federal Reserve will raise interest rates this year. Fed-fund futures show a 69% chance of a U.S. interest rate rise in March, compared with 76% on Friday, according to CME data.

Many investors embraced the declines in stocks, noting the earnings picture and economic backdrop remained supportive of the stock market.

“If anything, I feel I should be a little bit more invested [after the drop],” said Michael Thompson, managing director at S&P Global Market Intelligence, who said the sudden selloff struck him as more of an emotional than rational move in the market, likely exacerbated by speculative money in the market and jittery retail investors.

“I actually think stocks just got a lot more attractive,” he said.

The S&P 500 now trades at 17.6 times forward earnings, compared with 18.6 at the start of last week.

—Kevin Kingsbury, Kosaku Narioka contributed to this article.