Signs of relief for fragile markets after 'concerning' plunge

Risk assets were on firmer ground Tuesday following the worst start to the year since the financial crisis of 2008 for many global equity benchmarks.

After steep losses Monday, the Shanghai composite finished down a more modest 0.26 percent and the Shenzhen composite lost 1.86 percent. Both bourses were aided by China's central bank which injected 130 billion yuan ($19.9 billion) in short-term funds into the country's financial system.

Still, China shares oscillated between gains and losses during the session, and most major Asian bourses - like the Japanese Nikkei - ended in negative territory. In Europe, indexes fluctuated during the morning session but were posting gains by the afternoon, as U.S. futures rose off earlier lows.

Wall Street futures had initially pointed towards sharp losses for the open, with Dow Jones industrial average set for triple-digit losses – but cooled slightly as the opening bell approached.


"The moves seen in Chinese stock markets are quite concerning. Many market internals point to a likely renewed sell-off and a revisit of the late-August lows," Angus Nicholson, a market analyst at spread better IG warned in a morning note.

U.S. Treasurys were flat Tuesday after providing a haven for investors during Monday's market storm. Spot gold prices rose to $1,076 per troy ounce by midday London time, trading near a two-week high.

Bill Blain, senior fixed income broker at Mint Partners, remained upbeat on global markets and reminded investors that a couple of bad opening days don't necessarily mean "doom'n'gloom for the whole coming year."

"Stock ructions in China, ongoing tension twixt Iran and Saudi, busted bank bonds, oil, commodities and missed inflation targets should simply remind us it's going to be another 'same as, same as' kind of year where nervous markets will continue to react badly to uncertainty and fear of unknowns," he said in a morning note Tuesday.

The Dow Jones had its worst first trading day of the year since 2008 on Monday on the back on the Chinese equity plunge. The index closed down 1.58 percent but was, at one point, on track for its worst start to the year since 1983. It was also the worst start to the year for the S&P and Nasdaq since 2001.

In the U.K., the blue-chip FTSE 100 had its worst opening day since the year 2000 when the dot-com bubble burst. CMC Markets analyst Jasper Lawler was, like Blain, not overly worried by such heavy selling at the start of the year.

"(It) doesn't sound too positive for stock market sentiment but research suggests the first trading day of the year has little bearing on annual stock market performance," he said in a note Tuesday.