The renewed selling pressure has spurred a slide in the oil price once again and this is despite the fact that Iran has confirmed it is open to communicate with other members in relation to supply cut. However, the current fear which has sparked the sell off in stock markets is not mainly due the rout in oil prices, but it is predominantly on the back of the central bank’s policies. The medicine, which was working is no longer working in fact, it has instigated a counter reaction and the panic which we are experiencing in the banking sector is the direct of this.
Investors still very much remember the grisly sell off in the banking sector during the financial crisis and current panic in the market has brought a fresh cue of that. Traders are sensitive with respect to their risk appetite and their confidence is being thwarted continuously. It appears there is no interest for bargain hunting despite the fact that some of the banking stocks are trading at a level which is not seen since the financial crisis.
The picture is immensely different for the banking sector if you are comparing the situation to the financial crisis and it may be insane if you do not dip your toes a little given that the valuations have started to look prodigiously attractive. There is no doubt that the current punishment for the banking sector is nothing more than over reaction and traders need to use this as an opportunity rather then being completely risk averse.
If you are marvelling that the central bank’s are going to stand pat and keep watching this movie then you will surely get a rude wake up call because, they will respond to market need. However, how effective will be there new vaccine is surely a question of concern. Nearly $6 trillion worth of bonds are trading with negative yield and the central bank’s will have to have something immensely strong to answer this question, which investors have, because this number is neck breaking and grown nearly twice during the last couple of months.
Miss Yellen will be the primary focus for the markets today and her testimony will be very closely benchmarked. She will have to be prodigiously careful and she needs to strike a tone which gives a very balanced message. Not too dovish, but yet accepting that the global sell off is a matter of concern could be the answer under the given circumstances. The Fed minutes are due next, but this week is more important, as she will be giving away a huge steer about the thinking process of the Fed committee.
On Capital Hill, they like to grill the person who is holding the seat and it will be wrong to comprehend that Yellen will not be asked about the possibility of the Fed following the footsteps of the European Central Bank and pushing the rates in the negative territory.
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