February 6, 2018 / 7:46 AM / a year ago

LIVE MARKETS-Unwind of short volatility plays shakes market

    * European shares seen plummeting at the open
    * Futures on DAX, CAC, FTSE down around 4 percent
    * Wall Street suffered its biggest decline since 2011

    Feb 6 (Reuters) - Welcome to the home for real time coverage of European equity markets
brought to you by Reuters stocks reporters and anchored today by Danilo Masoni. Reach him on
Messenger to share your thoughts on market moves: danilo.masoni.thomsonreuters.com@reuters.net
    With the VIX shooting up in U.S. trading, its biggest one-day jump in more than two
years, investors are rushing to unwind big positions in ETF products shorting the VIX and take
out options protecting themselves against a further slide in stocks. 
    Our colleagues in New York reported overall VIX options volume hit 3.6 million contracts, or
about three times the daily average.
    The VelocityShares Inverse VIX short-term ETN sank 86 percent and the ProShares
Short VIX short-term futures ETF fell nearly 80 percent. Investors said the inverse ETF
products may be liquidated after suffering these heavy losses.
    Credit Suisse, the issuer of the VelocityShares inverse ETF, is seen down as much
as 10 percent at the open, according to a trader.
    The UBS VelocityShares VSTOXX inverse ETF, which shorts the European volatility
gauge, plunged 21 percent yesterday in New York. 
 (Helen Reid)
    As ve've seen European stock futures are pointing to heavy losses at the open and investors
are trying to make sense about what could come next, as inflation worries have pushed Wall
Street's volatility index to its highest since August 2015.
    "Price action is clearly driven by technical factors, tied to a brutal awakening of stock
volatiltity," said Alessandro Balsotti, head of asset management at JCI Capital Ltd.
    "We are undoubtedly in uncharted waters," he adds.
    "The first instinct as an asset allocator is to take advantage of this dip to add equity
exposure. Also to exploit the decline in yields to further reduce duration... Ultimately I think
the robust economic phase will be able to withstand the bloodshed on volatility. The real danger
for 2018 remains that the transition from a deflationary mentality to an inflationary one
will... not be simple at all for the market and investors," he said.    
    (Danilo Masoni)
    European equity index futures have opened down sharply confirming earlier indications from
financial spreadbetters for declines of around 4 percent.
    Here's your snapshot:    
    (Danilo Masoni)
    Corporate news is unlikely to have much impact today as investors prepare for broad sell-off
at the open that could see top European stock benchmarks fall as much as 5 percent. Anyway here
are the main headlines we've seen this morning:
BNP Paribas Q4 profits dip, yet bank signals more confidence on 2020 targets
EXCLUSIVE-British wind project draws investment heavyweights - sources
Bayer offers to sell businesses to win EU approval for Monsanto deal
Swedbank Q4 net profit tops forecast
Activist Elliott steps up calls for BHP to scrap dual listing
Apple supplier AMS's Q4 profit soars thanks to sensor technology
Banks in Britain and U.S. ban Bitcoin buying with credit cards
Infrastructure fund GIP offers 1.9 bln euros to buy railway group Italo
Terra Firma kicks off sale of Italian solar assets - sources
MEDIA-Accor nears sale of stake in real estate arm- FT
BRIEF-Safran To Hold 79.74 Percent Of Zodiac Following Tender Offer - AMF
Brazil's EMS and India's Torrent Pharma vying for Sanofi's generic drugs -sources
Belgian business urges Lufthansa not to merge Brussels Airlines with Eurowings
Lockheed, Rheinmetall team up to bid for German helicopter order
Intesa Sanpaolo releases results, business plan; announces full conversion of saving shares

    (Danilo Masoni)

    Good morning and welcome to Live Markets. 
    European shares are set to fall sharply at the open after a rout in global equities deepened
in Asia on Tuesday and Wall Street suffered its biggest decline since 2011 as inflation worries
gripped financial markets in a vicious sell-off.
    "The weakness has continued in Asia with the Nikkei225 bearing the brunt with its worst fall
since 1990, and is set to spill over once again today into European trading with another sharply
lower open for European stocks, as nervous investors continue to bail out," said Michael Hewson,
Chief Market Analyst at CMC Markets UK.
    Here are your opening calls: 
    FTSE100 is expected to open 275 points lower at 7,060 -3.7%
    DAX is expected to open 682 points lower at 12,005 -5.3%
    CAC40 is expected to open 260 points lower at 5,025 -4.9%
    (Danilo Masoni)

 (Reporting by Danilo Masoni, Helen Reid, Kit Rees and Julien Ponthus)
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