Understanding the Recent Market Sell-off

Not widely welcomed, but arguably overdue?

The sharp sell-off in stocks that started last week and gathered steam this week lacked a specific trigger — unlike the last time US shares fell this much, which came in the wake of the US losing its AAA sovereign rating at S&P Global Ratings in 2011.

As with plane crashes, the experts are pointing to a confluence of factors, from concerns over the path of Federal Reserve interest-rate increases to a rapid unwinding of trades predicated on continued low volatility in markets.

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The Global Cycle Has Further To Run

News this past week:

Stock graph
• Oil prices rose 2% on the week with Brent at USD 53.9
• Gold rose 1.9 % to 1347, its third week of gains
• Risk appetite returns as treasuries retreat, stocks advance
• Apple set to launch the iPhone 8 and X models this week
• Hurricane Irma devastates the Caribbean and Florida

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Market Update

News this past week:

  • Oil prices climb around 5% last week
  • Volatility makes a comeback moving to 10.9 on the VIX index
  • Global equities trading near record highs
  • Technology stocks under pressure with continued sell offs
  • Central banks adopt a hawkish tone around fiscal tightening

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US dollar on the back foot

dollarsAs Trump voiced his concerns over the apparent ‘bunch of bad hombres down’ in Mexico, the less sensational Fed voted unanimously to keep rates on hold and gave little indication of a hike at the next meeting in March. Comments included ‘some further strengthening’ in the labour market, increasing inflation, albeit still below the central bank’s target, and ‘soft’ business sentiment.

One thing you cannot say about Trump is, unlike many politicians globally, he has followed through with some of his main campaign promises, albeit some more recent actions are deemed controversial by many. We suspect the broadly dovish Fed members will act on a wait-and-see basis, as there has been little to no guidance from the Trump administration with respect to fiscal policy deployment and the consequent effects on US growth. The futures market is pricing in over a 70% chance of a hike in June.

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