Stocks tumbled around the world, government bonds sank and the euro rallied the most in six years after the scale of additional stimulus from the European Central Bank disappointed investors just as the Federal Reserve signaled tightening is imminent.

The Standard & Poor’s 500 Index fell the most in two months, while European equities had their worst day since the height of the summer selloff. The euro rallied the most since 2009, Germany’s 10-year note yield jumped 20 basis points and the rate on similar-maturity Treasuries had the biggest advance since February. Brent crude surged from a six-year low.

The selloff in risk assets spread from Europe around the world, as investors anticipated deeper cuts to lending rates and an increase in the amount of ECB bond purchases to support flagging euro-area growth. Fed Chair Janet Yellen indicated the conditions for higher interest rates have been met, increasing the odds the central bank will boost rates at its meeting in two weeks.

David Fuller's view

There is very little noteworthy news in those paragraphs above, but we can conclude that markets sentiment remains fragile, and there are too many high frequency trading elephants in the room.  This environment is OK for medium to longer-term investors who favour a buy-low-sell-high strategy but it plays havoc with leveraged traders. 

I would not read too much into today’s market spasms and regard them as more of a squall than the beginning of a long rout.  Nevertheless, stock markets are correcting a short-term overbought condition and the next good rally is likely to require oversold readings. 

Additionally, some moves are welcome, not least the Dollar Index’s (weekly & daily) failed upside break today.  Provided it does not bounce back up tomorrow or next week, this will please Janet Yellen at the Fed, not to mention CEOs of the USA’s global Autonomies.  A too strong Dollar in the short term squeezes their profits.  It also creates problems for emerging markets which borrowed USD when the currency was weaker.