Summary:
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US Tech leads global stock swoon
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Dax erases morning bounce as rout deepens
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Risk-off also seen in crypto?
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US inflation comes in below forecasts; USD moving lower
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Another large inventory build keep Oil under pressure
Wednesday saw the largest single-day drop for the Nasdaq in 7 years as plunging US tech stocks caused a global market swoon. European and Chinese markets have looked weak for some time now, but the US had been a pillar of strength and was not far from record highs before yesterday’s plunge. The scale of Wednesday’s declines have made many observers sit up and take notice with heavy losses seen around the globe. Given that there was no real fresh news to cause the large drops, it seems to be more a case of the US finally waking up to several sizable threats to what is the longest bull market in history. The political situation in Italy has been weighing on European bourses for the past couple of weeks, while Chinese equities remain in a bear market after investors sold out on rising trade concerns, but the US has carried on seemingly unperturbed until yesterday’s plunge.
Markets looked to recover this morning but The German DAX erased the morning’s bounce to trade back in the vicinity of the 11500 pts handle in the early afternoon. The US indices rallied from the opening bell but also were subsequently pared back and for the time being the markets look vulnerable to further declines.
Some analysts believe that crypto markets can be an accurate gauge of overall risk sentiment and this theory seems to be holding true today with large declines seen in the space. Ethereum and Ripple have both declined around 11% on the day and while Bitcoin is holding up relatively well and down by a little less than 5%, the biggest cryptocurrency is drifting back towards key support around the 6000 mark once more. YoBit is a cryptocurrency exchange popular among Russians as it offers trading with cryptocurrencies against not only the US dollar but also against the Russian ruble. It is one of many cryptocurrency exchanges and it seldom makes it to the top of news outlets outside Russia. However, sometimes all it takes to change it is one tweet. The company announced yesterday that it wants to make cryptocurrencies more attractive to investors. While this is a glorious goal when it comes to boosting price efficiency the way in which YoBit want to achieve it is questionable. Namely, the exchange announced that it will randomly select one coin and pump it with a single Bitcoin.
The large drops seen in the stock market prompted some interesting comments from Trump, with the President claiming that the Fed were crazy to be hiking rates. This news could well have an impact on the US dollar going forward, as if Trump starts to put pressure on the Fed to not raise rates then it may weigh on the greenback. With a tight labour market and well performing economy, the backdrop for the Fed does seem to be in keeping with gradual rate rises as we’ve seen in recent years. The main cause of the continuing hikes has been the rise in inflation and as such today’s CPI figure was keenly anticipated. The release itself showed a year on year increase of 2.3% which was below the 2.4% expected. This print also marked a fair size drop from the 2.7% seen previously. The core reading also came in lower than forecast, with a 2.2% print below the 2.3% expected.
The weekly EIA crude oil inventory release has shown a 3rd consecutive build and caused the price of Brent to fall below the$81 handle to trade at a 2-week low. A rise of 6.0M barrels in the headline release was well above the 2.3M consensus forecast, and marks the second large build in a row after a reading of 8.0M last time out. However, compared to last night’s private API release that showed a mammoth increase of 9.75M the figure doesn’t look quite so high. In fact the initial market reaction was a pop higher, with Oil gaining around 45 cents in the minutes following the release - presumably because the build was smaller than the API. These gains were short lived though, and the sellers have stepped back in and pushed the market below prior support around 81.15.
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