Trading screens fill with red as investors flee risk on mass

Dealing screens were filled with red today for the fifth session in a row as traders quickly escaped risky asset classes such as stocks on the problems endured in Asia as a result of the earthquake and tsunami.

The markets are now in correction mode and enduring some of the worst sessions seen for some time. To see the Nikkei lose as much as 14% this morning at one point has sent a shiver down the spines of European traders who were already concerned with the tensions in North Africa and the Middle East whilst European debt problems remain on the horizons.

We have the huge costs of the tsunami in Japan to consider whilst the potential nuclear ramifications are developing with each hour. We also have continuing tensions in Libya and the Middle East and let’s not forget traders are still uneasy about the implications of sovereign debt on nations such as Spain and Portugal. It’s the perfect storm of nagative sentiment and has all come to a head this week.

This fact is further typified by the FTSE Volatility index, a market gauge of trader fear or pessimism, which has rallied 30% to its highest point since June last year.

The FTSE 100 is now trading 8% off its February highs and with the near term momentum gaining towards the downside, traders could be waiting for the UK index to hit the 5500 level before being enticed back into the market. But with tensions remaining on several fronts, sentiment in the market remains particularly fragile.

Naturally it is the sectors that are classified as the most risky that has been hit the hardest by today’s falls. The mining sector has lost over 4% whilst energy firms have lost almost 3% and banks have fallen around 1.5%.

As traders have sought out safe haven asset classes such as the US dollar, this has in turned pressurizes commodity prices, which have also fallen on expected reduced demand from Japan. This in turn has forced the prices of energy firms and mining companies lower. As heavyweight firms on the FTSE 100 Index too, this is where much of the 3% losses on the UK Index have originated from.

Continued selling out of insurance firms on liability cost fears has also forced the insurance sector lower by 2.5% today, to add to sector losses of some 8% already over the last three trading sessions.