Summary:

• US banks were among the worst stocks on Wall Street during Tuesday’s session
• Asian equities drop alike, some second-tier macroeconomic readings from Asian economies
• Moody’s rating agency singles out risks for emerging markets

Italian woes continue spreading over other markets, and it was perfectly seen on Wall Street yesterday where the SP500 (US500 on xStation5) and the Dow Jones (US30) registered their biggest one-day percentage drops in a month falling 1.2% and 1.6% respectively. Among the largest laggards there were financial stocks, banks in particular being dragged down by declining US Treasury yields in response to a safe haven flight. Breaking down the SP500 one may spot that shares of banks plunged as much as 4% followed by the consumer finance sector dropping almost 3.5%. Looking at some specific stocks it’s worth paying attention to JPMorgan as well as Morgan Stanley – the most afflicted banks on Tuesday. The former went down 4.3% being the biggest drag on the whole index, whereas the latter declined by a whopping 5.8%. Grim moods are witnessed in Asia as well as the major Chinese index is dropping almost 2% a while before its close, and what yet importantly it’s broken down a crucial support line opening up a way for further decreases.

We are writing quite often about the Chinese benchmark (CHNComp), and today we are doing it again as the technical landscape deserves it. The price has smashed its noteworthy support placed at 11800 points, hence a move toward 11400 seems to be on the cards followed by 11100 points. Source: xStation5

As far as macroeconomic releases during the Asian session are concerned one may conclude there were not much at all. Either way, Japanese retail sales surprised to the upside coming in at 1.6% in a year-over-year basis in April beating the median estimate at 1%. Notice that this beat occurred despite stubbornly dormant wage growth, and one may be yet more upbeat as consumer goods prices, in particular food, fell. Therefore, one may suspect that a big beat could have something to do with the windfall from lower prices for food. On the other hand, Australian building permits slipped 5% in a monthly basis falling short of expectations pointing at a 3% decrease, though it’s a very volatile set of the data. Last but not least, the Reserve Bank of New Zealand released its financial stability report in which it stressed robustness of the financial system in general adding that liquidity buffers in the banking system are sufficient. However, it mentioned a high level of household mortgage debt being a source of concerns in the future.

The NZ dollar keeps struggling in the vicinity of the demand area, but any downside from here seems to be contained. Source: xStation5

Finally, let us mention a few remarks from Moody’s with regard to heightened risks for emerging markets. It said that those risks increased as credit conditions continue tightening amid rising rates. Moody’s claims that financial market turmoil in EMs poses risks of a broader negative spillover. The rating agency does not leave out rising oil prices saying they may weigh on purchasing power cutting back on consumer spending, but they may also present an upside risk to inflation.