Losses were broad and what happened on Wall Street began far more modestly in Europe. Initially fears of a Chinese economic slowdown drove luxury stocks in Europe; Morgan Stanley downgraded the sector to "underweight".

France's LVMH fell 7.1 per cent in Paris even though results after Tuesday's close showed its fashion and leather goods unit did better than expected in the third quarter. Moncler fell 10.9 per cent, Kering fell 9.6 per cent and Hermes lost 5.1 per cent.

In New York, shares in upscale jewellery retailer Tiffany & Co and perfume maker Estee Lauder both fell 10.2 per cent and 7.4 per cent.

Morgan Stanley analysts said luxury stocks were likely to fall further due to slowing Chinese consumption, weakening earnings and sales momentum, and the sector's vulnerability to general underperformance of growth versus value stocks.

Hasn’t taken much of a sell-off in #stocks for more market commentators to wish for the return of a stronger “ #Fed put.” That’s unfortunate,and may also be unrealistic.For their longer-term health, #markets need to be underpinned by fundamentals and not Fed liquidity injections pic.twitter.com/7LKYv2T9Q4 — Mohamed A. El-Erian (@elerianm) October 10, 2018

NAB head of FX strategy Ray Attrill said there may be little more to the sell-off than "a simple rush to book some profits" in particular with the equity market leaders in the last year and years. "Whatever is the correct explanation, the fact is that that the S & P-linked VIX 'fear gauge' is back above 20 for the first time since mid-April and a such we are seeing a little bit of a reconnect between the divergent paths of Developed versus Emerging risk markets that has characterised markets for much of this year."

There seemed initially little sense of an overall panic.

"More than 50 per cent of 10 per cent corrections either end or occur in October," Allianz Global Investors US investment strategist Mona Mahajan told Reuters. "A 5 to 10 per cent correction is likely here. We saw a similar thing happen in February when rates moved up and we had a 10 per cent correction as the market digested that. When we take a step back and look at the fundamentals picture there still some things to be positive about including a very strong US economy and earnings growth that will probably reach over 20 per cent this year."


In a blog post the previous day, BlackRock global chief investment strategist Richard Turnill said US equities performance this year has been supported by strong earnings.

Just as an iceberg loomed in the distant darkness to be struck by the Titanic under full steam, so the US economy approaches the distant fiscal drag of 2020 under the full steam of rate hikes to contain inflation and an overheating labor market. — Scott Minerd (@ScottMinerd) October 10, 2018

"We are not seeing signs of extremes in the market," Mr Turnill said. "Absolute stock valuations globally are within their historic ranges. In the US, valuations are above their long-term average, but not excessive beyond a small group of stocks."

Today's Agenda

Local data: Consumer inflation expectations October, Housing finance August

Overseas data: US CPI September

Market Highlights

SPI futures down 109 points or 1.8% to 5914 at 7.55am AEDT


AUD -0.5% to 70.63 US cents

On Wall St: Dow -3.2% S & P 500 -3.1% Nasdaq -4.1%

In Europe: Stoxx 50 -1.7% FTSE -1.3% CAC -2.1% DAX -2.2%

Spot gold flat at $US1189.24 at 12.33pm in New York

Brent crude -1.9% to $US83.38 a barrel

US oil -2.2% to $US73.31 a barrel

Iron ore flat at $US71.14 a tonne

Dalian iron ore flat at 514 yuan


LME aluminium -0.4% to $US2047 a tonne

LME copper -0.8% at $US6239 a tonne

2-year yield: US 2.85% Australia 2.03%

5-year yield: US 3.02% Australia 2.25%

10-year yield: US 3.19% Australia 2.75% Germany 0.55%

US-Australia 10-year yield gap as of 7.27am AEDT: 44 basis points

From Today's Financial Review

Business to go it alone on climate policy: The nation's energy companies and big electricity users have given up on federal politics and begun talks about a package of measures to reduce greenhouse gas emissions.


What's behind the bond sell-off: It's probably no coincidence that long-term US interest rates have spiked to their highest level in seven years as investors realised Trump's tarriffs are here to stay.

United States

Selling pressure rages unabated: Five straight dips without a buyer and suddenly you're talking about serious money. Why won't the selling let up?

Wall Street tumbled on Wednesday as investors dumped high-growth names such as technology and FAANG stocks, with rising Treasury yields and trade-related worries sapping risk appetite.

All three indexes hit records between Aug. 30 and Oct. 3, despite the escalating Sino-U.S. trade dispute gnawing at confidence on corporate profit growth through most of the year.

But a recent IMF warning on global growth taking a hit from rising tariffs has hit confidence in the stock market, as has U.S. Treasury yields at more than 7-year highs, signaling a tightening of capital globally.

"It's a risk-off environment as investors are focusing on spiking yields and taking profits off the table as they are concerned about whether the bull market is actually coming to an end," said Ryan Nauman, market strategist at Informa Financial Intelligence in Zephyr Cove, Nevada.

The retreat on Wall Street was led by technology stocks.


James Murdoch poised to be Tesla chairman: Outgoing Twenty-First Century Fox chief executive James Murdoch is the lead candidate to replace Elon Musk as Tesla chairman, the Financial Times reported.

Europe

Brexit deal may be 'within reach' next week: European Union Brexit negotiator Michel Barnier said an agreement with Britain could be "within reach" next week.

European shares had their worst day on Wednesday since June as concerns around rising debt yields gripped equity markets worldwide, while tech stocks sank on signs of slowing demand in the semiconductor industry.

The pan-European STOXX 600 index tumbled 1.6 per cent to its lowest since April 4 while Germany's DAX dropped 2.2 per cent. It was the biggest fall for the STOXX since June 25.

FTSE 100 hits new 6-month low: Britain's top share index hovered near a six-month low on Wednesday.

The tech sector sank 4.3 per cent, its worst day since the Brexit referendum selloff, as investors dumped the highly-valued sector on signs of weakening demand for chips.

Austrian chipmaker AMS fell 5.9 per cent and peer STMicroelectronics lost 5.8 per cent after VAT Group said it was cutting working hours at one of its factories due to a fall in demand from the chip equipment makers it supplies.


Shares in VAT Group sank 10.3 per cent.

"On the one hand, the short time working reflects the well-known softening of the investment cycle in the semiconductor industry since Q2 2018 ... and on the other hand it also reflects the fact the industry weakness looks to be extending into Q1 2019," wrote Baader Helvea analysts.

Asia

China's blue-chip index fell for a third consecutive day on Wednesday, but the main Shanghai Composite index rose as investors weighed government support for continued growth against the impact of the US-China trade war.

At the close, the Shanghai Composite index was up 0.2 per cent at 2725.84.

The blue-chip CSI300 index was down 0.2 per cent, with its financial sector sub-index higher by 0.2 per cent, the consumer staples sector down 2.6 per cent, the real estate index up 0.1 per cent and healthcare sub-index down 1.2 per cent. It was the third consecutive day of losses for the CSI300 index, bringing its losses for the week to 4.6 per cent.

Jack Ma reclaims top spot in China's rich list: Jack Ma has reclaimed the title of China's richest man following an explosion in the value of his empire.

Japan's Nikkei edged higher in choppy trade on Wednesday as investors picked up defensive stocks on the dips, while index-heavyweight SoftBank dived on news it was to buy a majority stake in US shared office space provider WeWork.


Retailers Don Quijote Holdings jumped 9.4 per cent and FamilyMart UNY rose 5.0 per cent after the Nikkei Business online reported in late trade that FamilyMart is considering selling all of its UNY unit to Don Quijote.

The Nikkei share average ended 0.2 per cent lower to 23,506.04, after switching between positive and negative territory through the day.

Index-heavyweight SoftBank Group tumbled 5.4 per cent to a one-month low and posted the biggest daily percentage drop in two years after a source told Reuters that the technology conglomerate is in talks to take a majority stake in shared office space provider WeWork Cos.

Citing people familiar with the matter, the Wall Street Journal reported earlier that the investment could be between $US15 billion and $US20 billion and was likely to come from SoftBank's Vision Fund.

Traders said the timing of the report was negative for SoftBank, which has invested in global IT companies and whose shares have been under pressure.

Currencies

﻿ The euro and sterling rose on Wednesday, underpinned by optimism for a Brexit deal, while the dollar lost ground against a basket of currencies even as US bond yields hovered at multiyear peaks.

"There is more optimism that they will find some agreement between Britain and (the) European Union before Brexit," said Steve Englander, global head of G10 FX research at Standard Chartered Bank in New York.


The pound reached a two-week high at $US1.3216 on Wednesday and held a gain of 0.5 per cent on the day. It hit its strongest level against the euro since June 15 at 87.23 pence.

The euro rose 0.3 percent to $US1.15270 and held steady at 129.750 yen.

Mnuchin warns China on currency devaluations: The US Treasury secretary has warned China not to engage in competitive devaluations of the renminbi as the two countries engage in an escalating trade war.

The Federal Reserve can likely stop raising US interest rates once they reach about 3 per cent, as long as inflation remains around 2 percent and the economy is doing well, Chicago Federal Reserve president Charles Evans suggested on Wednesday.

"We could move to a slightly restrictive policy stance and probably pause at that point and see how things are going," Evans told reporters in Flint, Michigan after a talk at the local chamber of commerce.

Evans said he estimates neutral to be around 2.75 per cent, so "something a little bit above that would be slightly restrictive" and would allow the unemployment rate to rise gradually to a more sustainable level.

US producer prices increased 0.2 per cent in September, in line with expectations, while a revision to wholesale inventory estimates for August showed the biggest jump in nearly five years, beating forecasts.

Commodities


US oil output to accelerate to record: US crude oil output in 2018 is expected to grow more quickly than previously forecast to a record high, according to a monthly US government report.

China's Dalian coke futures jumped more than 4 per cent on Wednesday as investors worried about tighter supplies after the major coal mining province of Shanxi vowed to reduce annual coke output.

The northwestern province on Tuesday pledged to cut coking capacity and coke production, as part of its long-term campaign against air pollution.

Coke producers in Shanxi will be given until October 1, 2019 to meet stringent environmental standards or be shut down, according to a government statement.

They will also be encouraged to phase out small and outdated production equipment, the statement said.

"Buoyed by Shanxi's plan on the coke industry and expectation of tight supply amid coming winter production restrictions, we expect prices in the futures market to rise in the short-term," analysts from CITIC Futures said in a note in Mandarin.

In the spot market, some coke producers in northern China hiked selling prices by 50 yuan to 100 yuan a tonne as environmental checks intensified.

Australian Sharemarket


Australian shares ended a turbulent trading session higher on Wednesday as healthcare stocks rebounded from two days of losses.

The S & P/ASX 200 index closed 8.7 points, or 0.1 per cent, higher at 6049.8 following a relatively flat session on Wall Street on Tuesday.

"US stocks spent a short time in positive territory but ended the day slightly lower as the switch from equities to bonds continued," said executive director of Validus Equities, Adam Joseph.

"Investors were also digesting news that the IMF has downgraded its forecast for global growth for this year and the next due to trade tensions, rising interest rates and political uncertainty."

Street Talk

Navitas the main game as private equity goes west

PEXA board bunkers down to pick a winner

TPG drafts in former Greencross big dog to vet proposal

with Reuters, Bloomberg, AAP

Comments? Questions? Let us know what you think of Before the Bell: timothy.moore@fairfaxmedia.com.au