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Markets shuddered on Thursday amid growing concerns over the health of the Chinese economy, the Delta variant of the coronavirus and the declining US Federal Reserve stimulus package.
Iron ore, luxury stocks and the dollar all send the same message to the markets: Investors are worried.
That anxiety surfaced on Thursday as global markets trembled over concerns from the Chinese economy, Covid and the Federal Reserve’s waning stimulus package. While the pain was greatest in commodities and cyclicals, even defensive tech stocks collapsed.
“What if the Fed can’t decrease, let alone increase? This market is tied to the narrative, ”said Kit Juckes, chief currency strategist at Societe Generale SA in London.
While global stock markets are still teetering near all-time highs, there is evidence in other markets that all is not well. The clearest alarm bells come from the commodities most sensitive to any change in economic growth.
Iron ore, the raw material for steel, hit its lowest level in eight months. Oil fell to its lowest since May and global commodities stocks lost nearly 2%.
Investors sought safe havens, pushing the dollar index to its highest level since November. Gold weathered the pressure, with prices stable at $ 1,791 an ounce.
“There seems to be this wall of worry and it almost feels like investors are looking for excuses to keep climbing this wall of worry,” said Anneka Treon, Managing Director of Van Lanschot Kempen. “It seems like an inflection point.”
Even luxury, an industry once seen as recession-resistant, appears to be a pain point as Asian countries freeze and China slows down. France, homeland of Hermès International and LVMH, has carried out a large liquidation of European equities. The benchmark CAC index fell 2.6%, the highest in a month.
Here are three more examples of market angst:
Volatility indices
The Cboe volatility index jumped above 23, the highest level since May. While August is typically a turbulent month and massive mid-month sales have become a hallmark of markets throughout the year, one-sided positioning can also fuel the surge. According to Credit Suisse Group AG, sellers of systematic volatility have come into effect recently and any turbulence could prompt them to hedge their positions.
Emerging market currencies
The MSCI Emerging Market Currency Index erased all of its gains of the year on Thursday. The index closed below its 200-day moving average this week, signaling further declines.
“Risk aversion has increased and the US dollar is taking center stage,” said Mitul Kotecha, chief emerging market strategist Asia and Europe at TD Securities in Singapore.
Energy stocks
West Texas Intermediate futures fell for six days, removing the larger energy space. Oil and gas producers on the MSCI World Index fell as much as 1.6%.
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