The Dow Jones Industrial Average posted its second worst week of 2014 as it joined other major global markets in a selloff of equities. The sharp downturn was led by sectors most traditionally exposed to global events, namely the energy, materials and industrial sectors.
A rash of poor news flowed out of Europe this week, pushing major European markets down severely. The ECB’s second round of Abs purchases was far lower than expected. The meager take-up suggests sovereign bond purchases by the central bank is getting closer.
Protests broke out in Belgium and France against government austerity and general reform efforts. Mario Draghi is reportedly preparing to confront EU and national leaders to reform aggressively. In other news from Europe Switzerland is debating a negative interest rate to combat the rising franc per the Wall St. Journal.
Shanghai markets were flat on the week but that belies a major downward move on Wednesday after reports that collateral requirements would be more stringent in short-term funding markets going forward. China’s central bank also injected more stimulus into the banking system this week.
Japan’s Q3 GDP revision put the country’s recession in a deeper hole. The updated measure states that Japan’s economy shrunk by 1.9% in the third quarter.
Weak energy prices are weighing down heavily on Canada. Growth expectations for the country going forward are falling. The central bank also stated this week that the housing market could be overvalued by as much as 30%.
Segments of the U.S. bond market came under stiff pressure this week. Levered loans and high yield bonds were said to have suffered from liquidity concerns early in the week, prompting much of the selloff in other assets.
The Bank for International Settlements sounded a warning on the growth of dollar-denominated debt outside the U.S., specifically in Asia. The bank also voiced concern that global markets are in a general state of fragility.