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The 'perfect storm' of problems for 'gullible' markets around the world

Lianna Brinded
Head of Yahoo Finance UK

Here are the top business, market and economic stories you should be watching today in the UK, Europe and abroad:

European market rout

Traders work at their desks in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany. Photo: Reuters

It’s a sea of red across European markets today after traders reacted to the huge sell-off in the US the day before.

The UK’s FTSE (^FTSE), Germany’s DAX (^GDAXI), and France’s CAC (^FCHI), were all down around 1.3% in early trading, marking a two-week low, following concerns over the exact nature of the US-China trade war ceasefire announced over the weekend. The last 24 hours has pretty much erased the positive start to the week.

“Though it seemed naïve at the time, Monday’s rally now looks positively deluded, investors gullibly swallowing news of a truce between the US and China, only to be bitten for the umpteenth time by President Donald Trump’s trade boasts,” said Connor Campbell, financial analyst at SpreadEx in a note sent to Yahoo Finance UK.

“Tweeting that he is a ‘Tariff Man’, the US president said that ‘when people or countries come in to raid the great wealth of our Nation’ he wants ‘them to pay for the privilege of doing so’, claiming America is ‘taking in $billions in Tariffs’. Nonsense, perhaps, but harmful nonsense nevertheless, with the Dow Jones losing its goddamn mind in the meme-able aftermath, the index plunging 800 points to sink back to a one week low of 25000.”

Shares were also pulled down on growth concerns — Eurozone business growth was at its weakest pace in more than two years last month.

Asia stocks were the first to react with Hong Kong’s Hang Seng Index (^HSI) dropping over 1.5% and Japan’s Nikkei (^N225) and China’s Shanghai Composite Index (000001.SS) falling just under 1%.

The selling “has all the nasty hallmarks that traders typically call the perfect storm,” said Stephen Innes, head of Asia-Pacific trade at OANDA. “Investors are probably left feeling duped, tricked and maybe even snookered by some ill-advised backslapping comments post-G20.”

“While trade war is certainly the number one driver of global risk sentiment, the current meltdown is morphing into a Hydra with familiar points of irritation – trade, (Federal Reserve), Brexit, Italy, global growth – coming to a head.”

Asian markets eventually pared some of its losses. The Hang Seng closed down 1.6%, dragged down by hammered tech stocks, while the rest of the markets’ trading sessions ended down by around 1%.

Thomas Cook in a tailspin

The world’s oldest tour operator Thomas Cook (TCG.L) is set to be dumped out of the FTSE 250.

Its share price has been in a tailspin over the last week after it issued a fresh profit warning and unveiled a £163m annual loss. The share price is continuing to bleed its value and has fallen 60% over the last week alone. It is now down more than 80% in the year to date.

Investors are not confident Thomas Cook will recover. A key indicator is the price of Thomas Cook’s credit default swaps (CDS), a kind of insurance against defaulting on debt — it spiked on Tuesday. The current price now implies a 60% probability that Thomas Cook will default on its debts.

Thomas Cook’s debt is trading like distressed junk, suggesting it’s in serious trouble as a result of a litany of mistakes and problems,” Bill Blain, a strategist at Shard Capital, told Oscar Williams-Grut from Yahoo Finance UK.

READ MORE: Thomas Cook fears grow as the stock tanks and debt insurance spikes

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