Fear based volatility returns to equity markets
Investor hopes that share market volatility had been put behind them have proven short lived. Market action itself has again become the dominant concern for investors. The kind of concern implied by last night’s three per cent drop in US stock markets is itself enough to make investors nervous and is a more likely candidate as catalyst of the last days for selling over the last 24 hours than China’s PMI reads. While yesterday’s PMI reads confirm a picture of ongoing weakness in China’s manufacturing sector, they were not fresh news. The official data was in line with expectations and the Caixin PMI was actually revised up a little from the Flash read.
The next key milestone for share market nerves will be whether or not the ASX 200 index can stay above last week’s low of 4928. At this stage the selloff of the last three days could easily turn out to be no more than a correction of last week’s rally
Currency markets provide evidence of current “risk off” sentiment in world markets. The US Dollar has fallen against the Euro and Yen as market volatility and a weaker read on the US ISM manufacturing index has markets winding back expectations of a September rate hike by the Fed. This US Dollar weakness has not been enough to save the Aussie and Kiwi dollars which fallen even further reflecting market concerns over China and commodity prices
The timing of today’s GDP release, which comes at a time of market nervousness could heighten its impact. Traders will breathe a sigh of relief if the number is firmly in positive territory.
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Frequently Asked Questions about this Article…
The recent volatility in equity markets is primarily driven by market action itself, with a significant drop in US stock markets causing investor nervousness. Concerns over China's manufacturing sector and currency market fluctuations also contribute to the current market sentiment.
Currency markets are showing a 'risk off' sentiment, with the US Dollar falling against the Euro and Yen. Despite this, the Aussie and Kiwi dollars have fallen even further due to concerns over China and commodity prices.
A weaker read on the US ISM manufacturing index has led markets to reduce expectations of a September rate hike by the Federal Reserve, contributing to the current market volatility.
The ASX 200 index is a key milestone for investor confidence. If it can stay above last week's low of 4928, it may indicate that the recent selloff is just a correction of last week's rally, rather than a more significant downturn.
The timing of the GDP release, amidst current market nervousness, could heighten its impact. A positive GDP number would likely provide relief to traders and potentially stabilize market sentiment.
China's manufacturing sector, as indicated by recent PMI reads, shows ongoing weakness. Although this is not new information, it continues to contribute to global market concerns and volatility.
Everyday investors can navigate market volatility by staying informed about key economic indicators, such as PMI and GDP releases, and understanding their potential impact on markets. Diversifying investments and maintaining a long-term perspective can also help manage risk.
For further expert commentary on current market conditions, you can contact CMC Markets at 02 8221 2137 for insights and analysis.
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