Nervous breakdown: what triggered the collapse in the global stock market

Nervous breakdown: what triggered the collapse in global stock Rinkerode link
August 26, 2019, 16:20

Vladimir Agoev,
Nikita Bondarenko
Monday, August 26, securities in Europe and Asia become cheaper after Friday’s fall in U.S. stock prices. The collapse on the grounds of the analysts associated with the aggravation of trade war with China: the parties promised to impose new protective duties. Participants in the global stock market also was disappointed with the speech of the head of the fed Jerome Powell, who did not comfort investors and to announce the introduction of measures to support the economy. Interestingly, the players of the Russian financial market less susceptible to a total panic and continue to remain calm.

  • Reuters
  • © Lucas Jackson

Monday, August 26, trades in the global stock market are accompanied by falling stock prices. At the end of the Asian session the Shanghai stock exchange index SSE Composite has decreased on 1,17% (up to 2863 points), Hong Kong’s Hang Seng — by 2.2% (to 25 602 points), and the Japanese Nikkei — by 2.17% and reached 20 261 points.

Securities become cheaper and European sites. At the opening of trading the German DAX was down 0.34% (11 572 points), British FTSE 100 — on 0,47% (up to 7094 points), and France’s CAC 40 down 0.19 percent (to 5316 points).

Quotes in Europe and Asia fall after the collapse of the us stock market. On Friday, August 23, in the US the Dow Jones industrial fell by 2.37% (25 628 points), corporate index S&P 500 by 2.59% (up to 2847 points), and high-tech NASDAQ lost 3% and fell to 7751 points.

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As said RT senior analyst «BCS Premier» Sergei Suverov, the panic on world markets have provoked a trade war the US and China. Previously, the Committee by tariffs and fees at the state Council of China announced to raise duties on American products worth $75 billion at 10% and 5%. Restrictive measures will come into force from 1 September and 15 December. His decision authorities explained by the protectionism of the USA.

In turn, the White house has promised to enter on September 1, the new duty of 10 percent on imports of Chinese goods worth $300 billion as a result of the limitations may be subject to all deliveries from China to the States. On the Chinese side, American policy threatens the principles of free trade, reports TASS.

In response to the statement of the authorities of China Donald trump has announced about the increase of existing duties from 25% to 30% on imports of Chinese products by $250 billion. moreover, from 1 September a new tariff on products from China in the volume of $300 billion will be 10% and 15%. About the American President wrote on Twitter. In his message he also called on American companies to return manufacturing from China to the United States.

It is noteworthy that, according to trump, on the background of the announced restrictions Washington remained committed to trade negotiations with Beijing. Meanwhile, as suggested by Sergei Suverov, investors have less trust in the resolution of the conflict and the warming of relations between the two countries in the near future.

«We believe that the trust between Washington and Beijing seriously undermined and it may continue to destabilize the world markets,» said Suverov.

Fed split

 

The reason for the dissatisfaction of participants in the global stock market began and the statement of the head of the Federal reserve system Jerome Powell. August 23, during a speech at a Symposium in Jackson hole (Wyoming), the Chairman of the fed again has given investors a clear signal about future monetary policy. As explained in an interview with RT Director for analysis of financial markets and macroeconomics IR «Instant invest» Alexander Timofeev, the players hoped to get from Powell to the hint of another interest rate cut, but left disappointed.

Note that on July 31, the American analogue of the Central Bank for the first time in nearly 11 years, reduced its interest rate. In the long term this measure supports economic growth, but makes it less profitable investments in dollars. Markets appreciated the likelihood of such a decision and was waiting for the fed’s message about the beginning of the long-term policy to reduce rates. Powell refrained from concrete statements.

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Investors consider it necessary to lower interest rates amid predictions of the imminent recession in the United States. According to the Federal reserve Bank of new York, the likelihood of economic downturn in the United States during the year amounts to 31.4% of the maximum value in ten years. Thus, according to Alexander Timofeev, the Committee on operations in open market FRS (FOMC) there is no certain position relative to the measures to support the economy.

«Powell in Jackson hole refrained from clear hints on further policy easing and was limited to neutral statements. By the way, in the composition of the Committee the FOMC increasingly manifest split. Before the meeting two members of the Committee stated that economic stimulus was unnecessary, and advocated a wait and see attitude regulator,» — said the expert.

The lack of clear statements on the Symposium in Jackson hole can also be due to the traditional secrecy of the meeting. About this in an interview with RT told the head of the Russian economic society. Sharapova Valentin Katasonov. According to him, every year the participants are heads of Central banks from around the world. At the moment the regulators are preparing for a massive reduction in interest rates in the currency wars and don’t want to disclose their plans.

«Most likely, today is produced as a General policy, coordination. The European Central Bank and the Federal reserve have embarked on policy easing, and I think they will try to your course to involve other Central banks,» — said Katasonov.

Against the trend

It is curious that amid the global collapse of stock quotes of the Russian financial market remains relatively stable. In the course of trading on August 26 Mosberg index grew 0.3% to 2669 points. The dollar added about 0.05% and trading near 66 rubles, and the Euro was down 0.2 per cent to 73.9 rubles.

The official exchange rates of the Central Bank on 27 August was 65,97 rubles per dollar and 73,39 of ruble per Euro.

As explained in an interview with RT, the head of analytical Department of company «Finist» Katya Frankel, in recent years, the Russian market is less exposed to global stock panic. According to her, investors ‘ attention is more focused on the change in oil price and sanctions on the agenda.

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At the auction on Monday, the energy cost of the benchmark Brent crude rose 0.5 percent to $59 per barrel. Such data leads the ICE exchange in London. As noted by Frankel, the rise in oil supported the national currency.

In addition, 26 Aug States imposed a second package of measures against Russia in the case Skrobala. Within the limits of Washington will oppose the granting of loans, financial or technical assistance from the international financial institutions such as the international monetary Fund and the world Bank. In addition, American banks will be allowed to participate in the primary market-rouble bonds of Russian sovereign debt and to provide non-Russian ruble loans to the Russian government.

However, market players have already factored in the new restrictions in their actions, so experts do not expect sharp fluctuations of the ruble. Moreover, the sanctions only apply to the purchase of Russian Eurobonds and debt securities denominated in a foreign currency. While the main instrument of Russia’s financial authorities to raise funds from abroad remain denominated Federal loan bonds (OFZ).

«The second package in the case Skrobala proved to be extremely formal, basically meaningless — the IMF or the EBRD Russia has long takes, the placement of Eurobonds does not need, gaining the bulk of the debt in rubles and us banks to us for the placement of these loans to anything,» — said RT’s chief analyst GK TeleTrade Peter Pushkarev.

According to the forecast of Sergei Suverov in the near future the dollar may decline to 66.5 rubles, and index of Mosuri will remain near current values. In turn, Katya Frankel believes that in September the Russian currency remain the chance to grow to 64.5—65 rubles per dollar.

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