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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