Global Stocks Slide, Futures Drop After Turkey Shoots Down Russian Warplane

It had been a relatively quiet session overnight, with German GDP reported in line as expected, and attention focused on the second revision of US Q3 GDP in a few hours, when as reported previously, the geopolitical situation in the middle east changed dramatically when NATO-member country Turkey downed a Russian fighter jet allegedly over Turkish territory even though the plane crashed in Syria, and whose pilots may have been captured by local rebel forces.

The news promptly slammed Turkish assets and FX, sending the Lira tumbling…

pushing lower European stocks and US equity futures while sending 2 Year German Bunds to record negative yields.

Since then, there has been a modest rebound in risk, however assets on both side of the Atlantic remain subdued on concerns just what the Russian response will be. According to Frants Klintsevich, deputy head of upper house’s security and defense committee, Russia views Turkish actions as “extremely agressive”, even though Kremlin spokesman Peskov said that “it would be wrong to make some kind of assumptions right now, to make any statements until we have the complete picture. Therefore, we just have to be patient. This is a very serious incident, but again, it is impossible to say anything without complete information.”

Elsewhere, the commodity pain continues and as Bloomberg notes, “there’s no respite for mining stocks.” BHP Billiton sank to its lowest in seven years in London trading. The world’s largest mining company faces a one-notch downgrade to its credit rating in the next 12 months. Standard & Poor’s says the move depends on BHP’s response to potential falls in iron ore and oil prices. The fortunes of the Bloomberg World Mining Index, a gauge of 81 stocks, are tied to the outlook for commodity prices, particularly base metals. An LME index of six industrial metals has sunk to the lowest since 2009 on falling demand from China, the biggest commodities user. Citigroup is sticking its neck out and saying platinum may prove to be a good bet after slumping to a seven-year low on Monday.

In other overnight news, Bill Ackman’s increased his Valeant stake through a syntehtic long of 12.5 million share equivalents by buying calls and selling puts, China loosening control over brokerage business, VW approval of diesel engine fix, Noble Group put on S&P credit watch negative, and Carl Icahn announced new 7.13% Xerox stake.

Where global markets stand:

A more detailed look at global markets shows that Asian stocks traded mostly lower mirroring the lacklustre close on Wall St. as the continued losses in the metals complex weighed on risk sentiment after copper retreated below USD 4,500/ton . This saw the ASX 200 (-1.0%) pressured by large mining names. Nikkei 225 (+0.2%) traded mildly higher with Sharp shares soaring over 20%. Chinese bourses completed saw the materials sector underperforming in the Shanghai Comp. (-0.2%), while the Hang Seng (-0.4%) was weighed on by financials after China’s Asset Management Association stated that 12 of its registered private funds were not contactable and it could declare the funds abnormal. There were also reports in the WSJ that China is to drop the limit on brokers’ proprietary trading and allows for net short positions. 10yr JGBs traded flat amid light volumes despite the BoJ entering the market to purchase JPY 1.1trl in government bonds.

In Europe equities were weighed on by the uncertain sentiment (Euro Stoxx: -1.0%), particularly given that Turkey is a member of NATO and as such any escalation could have a wider impact on other NATO members . However equities came off their worst level in the following hour, amid no sign of immediate escalation on the back of the incident. In line with the softness in equities, fixed income markets saw a bid, while also benefitting from month end extensions, which are set to come into effect sooner than usual given the Thanksgiving Day holiday in the US on Thursday.

European Top News and Eco data: