I had five positions running in the Aussie market on Monday. By yesterday, I only had one left. The rest were ‘kicked out’ due to prices hitting their respective stop-loss levels.
The global markets have lost it. Geopolitical tensions mixed with a China slowdown — reinforced by a slump in energy price — have destroyed market sentiment.
I am sitting in front of my trading screen and just watching an absolute bloodbath.
But let’s recap on what happened after Monday.
On Tuesday markets calmed down a lot. Australia was just about the last market to receive the punishment. On Tuesday, Europe and the US were doing much better and Asia was slightly down. However, rising geopolitical tensions were once again pushing markets over the edge yesterday.
The quick return to calm right after Monday tells us two things. One, the Chinese ‘circuit breaker’ (stop-loss for the entire market) worked. The People’s Bank of China’s (PBOC’s) injection of US$19.95 billion into the market on Tuesday also gave additional assurance.
As for the lifting of the insider-selling ban, the regulators may choose a gradual path instead of an all-out lift on the ban. On Wednesday, they announced exactly that.
The second take-away is how the global reaction to China’s volatility is evolving. The global market is currently very sensitive to large moves in the Chinese currency and its stock markets.
When China’s currency and stock markets are moving within a normal band of volatility, the global market tends to discount it. But when there are unexpected moves (which will happen a lot in China because it is a policy-driven regime instead of a free market operation), global markets tend to overreact. Right now, the markets are starting to be unnerved again by the depreciation of the yuan in recent days.
We have also seen an increased sensitivity to China’s economic numbers. As inaccurate and scrutinised as they are, they are increasingly moving global markets, particularly regional markets like Australia (and other Asian markets). A bad number usually adds downward pressure on energy and commodity prices, which would dampen market sentiment.
Emerging Market Analyst, New Frontier Investor