Vix index collapses
Surprising to many market commentators was the euro being just as big a recipient of the ‘flight to quality’ as the Swiss franc. As stock indices collapsed the euro tended to gain strength in inverse proportion rising at one stage by 3% against both the dollar and Sterling. Since the Chinese move on 17th August the Euro has risen by 5% against both dollar and sterling. Long held short positions are being sacrificed to compensate for stock losses. Win some lose some!
Commodity currencies collapse
Infectious contagion is ruling the market. As stock indices collapse, commodities soften leading to a rout in commodity currencies. The market now waits nervously for the Chinese authorities to restore order, but can they. Action is required quickly or else a rerun of the Asian collapse of the 1990’s is just around the corner. 2 years ago the Aussie dollar at its peak yielded just 1.40 per pound. Compare that to today’s rate close to 2.20 a movement of over 35% and one can begin to understand the severe downgrading that commodities have suffered. This must call in to doubt the whole rationale of world economic recovery.
Rate rises what rate rises?
The betting for a fed rate rise next month has fallen from 52% to 21%. Who are these 21%. Unless we see an unbelievable rally in stocks commodities et al it would beggar belief that the Fed in the face of such economic uncertainty would put up rates. We hear indeed this morning that a leading British clearing Bank has just put their forecast of a Fed move back to March next year.
Almost irrelevant in a market as febrile as currently, Germany has just confirmed that its second quarter GDP growth was indeed 0.4% for the quarter an 1.6% year on year. Provided that Tsipiras wins his election and that Chinese contagion becomes isolated it is likely that German GDP will improve as we head toward 2016 and QE has a positive impact on the economy. Just announced, Ifo business confidence for August at 108.3 slightly ahead of forecasts. A raft of statistics from the US this afternoon are all expected to be a touch negative, putting further doubt into the Septemberists.
Threat or opportunity
The greatest/luckiest investors often buy into panic. So is this a good buying opportunity or not. It doesn’t feel like it yet and more volatility can be seen yet. Rumour has it that flash traders caused the Dow to open 1,000 points down yesterday. Is technology our nemesis? On the other hand if it looks good take advantage. Last week Euro sellers were looking at 1.43. Yesterday some savvy punters secured 1.35.