The tantrum on Wall Street is not over yet, atleast not for now, as the global economy is facing its biggest challenges, and getting worse day by day, and we have no solution insight in the near term. This has spooked traders to run out of riskier derivatives and pile up their bets for the safe heaven. Printing money has always question mark imposed on it, and there is always a concern what will happen when the black out will take place. This is what we are experiencing in the markets now. The signals of slower growth in China, Japan and in the euro region are not something new to make the news headlines and cause this intense sell off, but the underline fact remain very valid, which is what will happen to the global growth and the equity market in the absence of this cheap money? The Fed will stop printing money this month and many believe that the growth we have seen in the US was mainly due to the Fed providing the support and now that helping hand is going to be vanished and the real test for the economy will begin.
On top of this we have no shortage of traumatic geopolitical events through out the world such as unrest in Ukraine and Russian and these geopolitical tensions has deeply hurt the letter G in the word called growth. The continuing efforts to fight the so called terrorism in the Middle East, has its implications on the emerging markets, and now the protests in Hong Kong are further rattling its roots. If you think that the lows that we have experienced in the US, Europe and in the Asian markets are done for this year, you may need to recalculate your numbers, because these lower levels may not survive for long. These are the times when investing sensibly and having a well diversified portfolio can help traders massively and playing VIX, the volatility index, is one element of that.
It is important to keep in mind that despite the recovery in losses in the US, the equity market still closed lower yesterday and this is keeping the pressure on the European futures today which could gain further momentum later in the day. The economic docket does also have number of events on it. Firstly, it is the final CPI data for the eurozone which is due at 09:00 GMT. A negative reading will further put stress on the ECB to handle the most important mandate it has, and will make matters much easier for Draghi to fight his case against Germany for full blown QE. Later in the day, we have unemployment claims and industrial production data for the U.S.
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