Markets were shaken on Thursday by mounting concerns about the health of China’s economy, the Delta variant of the coronavirus and declining stimulus from the US Federal Reserve.
Iron ore, luxury stocks and the dollar are sending the same message to all markets: Investors are fidgeting.
That anxiety was on display Thursday as global markets shook in the wake of concerns spreading from the Chinese economy, Covid and declining stimulus from the Federal Reserve. While the pain was most acute in commodities and cyclicals, even defensive tech stocks tumbled.
“What if the Fed can’t go down, let alone go up? This market is tied to the narrative, ”said Kit Juckes, chief currency strategist at Societe Generale SA in London.
While global equity markets are still reeling near record highs, there is evidence in other markets that all is not well. The clearest alarm bell comes from commodities most sensitive to any change in economic growth.
Iron ore, the raw material for steel, sank to an eight-month low. Oil fell to its lowest level since May and commodity stocks lost nearly 2%.
Investors sought havens, pushing the dollar index to its highest level since November. Gold held up against the pressure, with prices stable at $ 1,791 an ounce.
“There seems to be a wall of concern and it almost feels like investors are looking for excuses to keep climbing this wall of concern,” said Anneka Treon, CEO of Van Lanschot Kempen. “It seems to be a turning point.”
Even luxury, an industry once considered recession-proof, looks like a sore spot as Asian countries shut down and China slows. France, the home of Hermes International and LVMH, led a broad sell-off of European stocks. The benchmark CAC index fell 2.6%, the most in a month.
Here are three other examples of fear in the market:
The Cboe volatility index jumped above 23, the highest level since May. While August is typically a turbulent month and mid-month sell-offs have become a feature of markets throughout the year, one-sided positioning may also be driving the rise. Systematic volatility sellers have been in place recently according to Credit Suisse Group AG, and any turbulence could be prompting them to hedge their positions.
Emerging Market Currencies
The MSCI Emerging Markets Currency Index erased all of its gains for the year on Thursday. The index closed below its 200-day moving average this week, announcing further declines.
“Risk aversion has been on the rise and the US dollar is leading the way,” said Mitul Kotecha, chief emerging markets strategist for Asia and Europe at TD Securities in Singapore.
West Texas mid-futures have fallen for six days, destroying the broader energy space in the process. Oil and gas producers on the MSCI World Index fell as much as 1.6%.