No mercy is the attitude from traders who are unwavering to punish the stock market and the heavy sell off over in Asia is the direct result of this. This is despite the fact that the Chinese markets are closed for a public holiday which usually are the root cause for any sell off.
It was not long ago when the banking sector was the primary element which kept traders fearful and now the same distress is back on the street of Europe but with a different outfit. What investors are anxious about is how grisly the picture can get for the European banks and if there was any opportunity of them recovering from the legacy of the financial crisis. The negative rates introduced by the European Central Bank have thwarted that expectations. Given that the bank of Japan is following the footsteps of the European Central Bank and has introduced negative rates, the same fear is hunting their markets.
So all in all, we have a strong virus and the vaccination of negative rates, which did spur some risk appetite has become immune. This could prompt an immensely horrifying sell off for the global markets because the underlying factor is that the central banks have failed to embolden any risk loving attitude. This is one of the chief reasons that we are experiencing such a sturdy interest for the yellow shining metal and this affair has aided the price to break the resistance of 1200. Although, we have eased off from this level, but it will not be for long before we break this level again.
European markets, which were fortifying risky behaviour amid investors are without any doubt lacking shine. Italian banking sector along with Greek, both are fragile and flimsy and this has instigated the heavy sell off. Most of the Eurozone indices have been hit enormously hard with the selling pressure and the DAX index, which is usually measured as the most stable has not only lost all the gains which were on the back of the ECB stimulus medicine, but the index is trading nearly over 12% below that level due to the expiry of that medicine.
If Greece was something which stayed in the headlines over the past few years, Italy is ready to occupy that spot. The failure of any action and lack of reforms are the direct results of this and on top of that negative rates itself from the ECB has put more pressure on the banks which were emboldened to lend more. It will be extremely intriguing to see the upcoming ECB lending figure and how adversely they will be hit with this new fear.
The only element which is going up is the cost of insuring banks against their possibility of default. One of the most robust bank in Germany, Deutsche bank, has suffered heavy losses and its shares are trading to a level which has not been seen since 2009. Investors are raising questions if the bank’s operations are sailing in the correct direction and if there is any fuel in its balance sheet which can aid against the upcoming heavy storm.
Disclosure & Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.
by Naeem Aslam