In Asia, China continues to be under pressure as economic data is showing a slowing economy, analysts are starting to think that the Government’s push to change the country’s economy from investments driven to consumer demand based is failing, and the stock market hit multi-year lows, after more than doubling in the first half of the year. Over the past two days, the Chinese Central Bank has intensified its efforts to contain the downward drivers that are negatively impacting the country’s economy and financial system, and that have sent shock waves across global markets over the past two weeks. After injecting over $23 billion into its banking system on Tuesday, the PBOC went a step further, cutting interest rates once again, and offering cheap loans and additional cash in an attempt to lower the steepening financing costs faced by both companies and individuals. The most recent interventions are partially aimed to provide some relief to the Chinese financial system, and partially to shore up confidence, after investors restarted selling Chinese assets in the aftermath of the sudden and sharp decline in the Yuan. Following the unexpected partial liberalization of the Chinese currency on August 11th, the Yuan has lost as much as 3.2% against the US dollar, and has materially contributed to cause a global equity selloff that has prompted the Shanghai Composite Index to decline near 25% in two weeks.
So far the stimulus injected by the Chinese Central Bank has provided markets with an upside catalyst, helping the country’s equities to raise 1.3% on Wednesday and an additional 5.34% overnight. However, some analysts believes that the latest interventions will only prove to be temporary measures and that the second largest economy will continue to be under pressure, whilst remaining a driver for higher volatility within the global equity markets.
In the US, after witnessing an equity flash crash on Monday, investors have restarted buying dollar denominated assets, helping to stabilize markets on Tuesday, and fueling, on Wednesday, one of the largest equity daily rally in years. The Dow Jones Industrial Average, that opened 1,000 points lower on Monday, has recouped most of the losses recorded at the beginning of the week by adding 3.95%, while the Nasdaq, home of some of the largest momentum names, gained 4.24%, finishing yesterday’s session only three tens of a percentage below last Friday’s closing price. Leading the rebound were once again big names such as Apple Inc, which rose 5.74% to $109.69, Facebook Inc., up 5.05% to $87.19, Google Inc., which closed 7.72% higher, and banks, most of which closed between 4.5% and 5% higher on the day.
After Tuesday’s rally faded away throughout the US afternoon trading session, the rebound witnessed yesterday seems to have found a positive momentum, pushing Asian markets in the green, and prompting European markets to open higher this morning.
While all market participants agree on the view that volatility in the markets is here to stay, and they expect large price movements to continue over the next few weeks, investors are split on the interpretation of yesterday rebound: is it the beginning of an market normalization, or is it the last rally before a deep correction? Regardless what your view is, the high volatility and news dependent current market environment would suggest caution to both; sellers ready to panic and standby opportunistic buyers.
Disclaimer:
This article was issued by Paolo Zonno, Trader/Analyst Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt .The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.