logo |

News

    Home   >     Industry    >     Main body

    Market Exuberance Faces Biggest Test Yet From Confluence of Risk

    Abstract:Markets may be headed for a wake-up call as scenarios that investors brushed aside to fuel a global rally move closer to reality.

      Markets may be headed for a wake-up call as scenarios that investors brushed aside to fuel a global rally move closer to reality.

      These include seeing the rate of Covid-19 infections pick up in nations that have eased lockdowns, growing tension between the U.S. and China and corporate finances faltering. The number of defaults in Chinas dollar bond market is climbing and second-quarter earnings are just around the corner.

      “I would add the growing realization that the official stimulus pipeline that has been feeding the risk rally is drying up,” said Valentin Marinov, head of Group-of-10, foreign-currency strategy at Credit Agricole. “Its a matter of critical mass of bad news that could tip the rally over and investors turn defensive again.”

      The brief but sudden drop in stocks in Asian trading on Tuesday after White House adviser Peter Navarro sowed confusion over the U.S.-China trade deal is evidence that, despite the trillions of dollars in stimulus being pumped into global markets, risk sentiment may be fragile. Rabobanks Michael Every described the jolt as a “a taste of things to come.”

    Read More:
    • Navarro Knee-Jerk Shows How Sensitive Markets Are to Trade Talk
    • U.S. Real Yields Foray Below Zero Underpins Bonds-Stocks Divide
    • Investors Are Spending Fresh Billions Hedging Market Mania

      Yen Calm

      “Its concerning how few tail risks are priced stemming from a second wave, the U.S. presidential election and a hard Brexit,” said Jordan Rochester, a Group-of-10 currency strategist at Nomura International Plc in London.

      Before Tuesdays knee-jerk reaction in markets, stock and currency volatility had fallen to levels last seen before the virus, and the Japanese yen -- a globally recognized haven -- dropped below its five-year average, having underperformed almost all its Group-of-10 peers this quarter.

      The gap between the Stoxx Europe 600 index and profit forecasts for its members is near the widest on record. Markets are on tenterhooks for second-quarter results, which will indicate how badly lockdowns have hurt companies. And bears have been retreating from the British pound, even as the prospect of a no-deal Brexit looms.

      But the big risk that isnt priced in “is policy makers potentially slowing down the stimulus,” Rochester said. Those measures have helped high-yielding assets advance despite a plethora of negative data this quarter.

      Bank of England Governor Andrew Bailey said in a Bloomberg Opinion article on Monday that the financial system mustnt become reliant on these extraordinary levels of reserves, with some monetary stimulus needing to be withdrawn as economies recover.

      The BOE last week announced it would complete its asset-purchase program around the turn of the year, which could put further pressure on financial markets. Meanwhile, Federal Reserve data showed that its balance sheet contracted 1%, the first drop since late February.

      Taking Profit

      Markets may be starting to acknowledge a slower recovery, with stocks of companies that benefit from workers staying at home -- such as Netflix Inc. and Amazon.com Inc -- doing well on Monday, and gold prices rising for a third day Tuesday.

      The pick up in euro-area economic activity after the lifting of lockdowns in June is doing little to change the picture of a long, slow recovery and rising unemployment.

      “We have been taking profit,” said John Taylor, who manages $6.6 billion at AllianceBernstein in London and bought corporate bonds in April. “I wouldnt only worry about a second wave of Covid and any reversal of lockdown, but also how the economy holds up as governments start to ease back on the support.”

      — With assistance by Anooja Debnath

      (Adds context on euro-area economic activity in penultimate paragraph.)

    Latest News

    United Arab Emirates Dirham

    • United Arab Emirates Dirham
    • Australia Dollar
    • Canadian Dollar
    • Swiss Franc
    • Chinese Yuan
    • Danish Krone
    • Euro
    • British Pound
    • Hong Kong Dollar
    • Hungarian Forint
    • Japanese Yen
    • South Korean Won
    • Mexican Peso
    • Malaysian Ringgit
    • Norwegian Krone
    • New Zealand Dollar
    • Polish Zloty
    • Russian Ruble
    • Saudi Arabian Riyal
    • Swedish Krona
    • Singapore Dollar
    • Thai Baht
    • Turkish Lira
    • United States Dollar
    • South African Rand

    United States Dollar

    • United Arab Emirates Dirham
    • Australia Dollar
    • Canadian Dollar
    • Swiss Franc
    • Chinese Yuan
    • Danish Krone
    • Euro
    • British Pound
    • Hong Kong Dollar
    • Hungarian Forint
    • Japanese Yen
    • South Korean Won
    • Mexican Peso
    • Malaysian Ringgit
    • Norwegian Krone
    • New Zealand Dollar
    • Polish Zloty
    • Russian Ruble
    • Saudi Arabian Riyal
    • Swedish Krona
    • Singapore Dollar
    • Thai Baht
    • Turkish Lira
    • United States Dollar
    • South African Rand
    Current Rate  :
    --
    Amount
    United Arab Emirates Dirham
    Available
    -- United States Dollar
    Risk Warning

    The Database of WikiFX comes from the official regulatory authorities , such as the FCA, ASIC, etc. The published content is also based on fairness, objectivity and fact. WikiFX doesn't ask for PR fees, advertising fees, ranking fees, data cleaning fees and other illogical fees. WikiFX will do its utmost to maintain the consistency and synchronization of database with authoritative data sources such as regulatory authorities, but does not guarantee the data to be up to date consistently.

    Given the complexity of forex industry, some brokers are issued legal licenses by cheating regulation institutes. If the data published by WikiFX are not in accordance with the fact, please click "Complaints "and "Correction" to inform us. We will check immediately and release the results.

    Foreign exchange, precious metals and over-the-counter (OTC) contracts are leveraged products, which have high risks and may lead to losses of your investment principal. Please invest rationally.

    Special Note, the content of the Wikifx site is for information purposes only and should not be construed as investment advice. The Forex broker is chosen by the client. The client understands and takes into account all risks arising with Forex trading is not relevant with WikiFX, the client should bear full responsibility for their consequences.

    ×

    Select Country/Area

    ×

    Select Country/Area