Market update: The stock market plunge continues, oil follows, Dollar rallies

25 Oct

by Mihály Tatár

 

Good Morning!

 

  • The stock market plunge continued with even bigger momentum (SPX -3.09% – we are now through the key 2700 level; Nasdaq -4.43% – it dropped 12% in three weeks, expect an avalanche of self-pity and excuses from your pension fund managers; DAX -0.73% – Volkswagen evaporated a further 6% (!) from its market value (-21% YTD, -50% since 2015), as analysts were truly, really, very surprised that the Chinese auto market is not going up anymore; Italy -1.69%; Nikkei -3.33%; Shanghai -1.74%, the latter means -35% in Dollar terms since late January, I guess a few real estate investments from Berlin to Budapest will have to be liquidated now). It’s worth noting that supposedly, the main reason behind the stock markets’ fall is the ’concern over corporate profits’, which is somewhat amusing if you look at what bank stocks have been doing lately: Unicredit -32% YtD (-95% since 2008, it didn’t help that so far Draghi ruled out saving Italian banks), Raiffeisen -22%, BNP Paribas -26%, Deutsche Bank -45% and a fresh historical record low, even Citi -15%, Bank of America -13%), the classic signs of global central bank easing withdrawn. (And it’s no wonder that optimistic strategists’ main argument is now that the Fed, seeing the stock market declines, and fearing a real economy shock, will do a full retreat. ) Currency and bond markets kept following the stock market developments: The EURUSD slipped to 1.1380 – as discussed earlier, this low even as traders are very careful – 1.13 is the level where Trump angrily intervened back in August, and today at the ECB meeting Draghi finds himself in a dilemma again (the Eurozone is slowing instead of accelerating – the Eurozone Manufacturing PMI cooled to 52.1 from 53 between September and October, and the ECB’s Germanic stance on Italy might backfire on investor trust, normally neither supporting their hawkish stance). Regional currencies retreated in the negative sentiment (EURHUF 323.70, EURPLN 4.312, EURCZK 25.87), some money went into Swiss Francs (EURCHF down to 1.1365, the Swiss Central Bank won’t be happy, and there are rumors that Italian families are busy setting up deposits in Switzerland), Gold (1238 USD) and bonds (US 10Y yield 3.10% – these guys are the bravest, given Trump just announced another tax cut for the middle class). The one-way movement in oil prices continued, too (WTI 66, Brent 75.40 USD, the latter means -13% from the October high of 86.70),  – US crude inventories continued to rise and commentators now attack with the stock-oil correlation – personally I suspect a lot of hedge funds, which didn’t have the US midterm elections in their diaries, will stop out badly under the 74 USD zone.

 

 

Have a nice day,

Mihály

 

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