U.S. markets closed sharply lower yesterday as both mining and the biotech sectors were leading the sell off. The mining sector was already under pressure during the European session as Glencore (LONDON:GLEN) lost nearly 30% of its value only in one day. Investors punished the stock due its debt burden, but its management is certainly taking the correct action by selling its assets to reduce the stress on its balance sheet. Whereas, the biotech sector over in the U.S. was primarily selling off on the back of the tweet from Hilary Clinton, who tweeted last week that there should be a cap on the medicine price.
This negative momentum has filtered into the Asian markets where the Nikkei index dropped nearly 4% and the same momentum is going to keep the pressure on the European markets. The Stoxx600 is getting very close to enter into the bear market, thanks to the commodity rout and miners sell off. Given that the U.S. is close to raise its interest rate, the rout in commodity price could become even more worse as the dollar denominated commodities will feel more pressure due to the strength of the mighty dollar. Yes, it is true that the U.S. economic data released yesterday did not help in pinpointing the exact date for the U.S. Interest rate, but the Fed members confirmed once again that the October meeting is a live meeting regardless if there is a press conference or if there isn’t. The Fed officials still believe that the commodity rout and the strength of the U.S. dollar have only a transitory impact and this will fade with time.
However, the Federal reserve members also balanced that hawkish approach with some dovish comments by confirming that certain factors can always have more weight in the Fed interest rate decision and the rate hike could be delayed due to those reasons. The Dallas Fed manufacturing index also printed a disappointing reading yesterday and joined the likes of Empire, Philadelphia and Richmond- painted a very negative picture. This certainly impacts the rate hike decision.
China remains the front and central focal point for the markets. It is still not clear how much weakness is there in the Chinese economy and if the authorities are actually printing the correct figures for the economy. Nonetheless, all eyes will remain focused toward the upcoming Caixin manufacturing and PMI data and investors will build their sentiment on the basis of this. As for Europe, there is a raft of economic data due later this week and this will set the tone for the prospects of more quantitative easing from the ECB president who has indicated previously that the control is standing ready to inject more liquidity of the situation calls for it.
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