The next collapse in US stock markets has spread in waves around the world, sharply increasing the demand for defensive assets again. The Nasdaq index of high-tech companies fell by 4.5%, as well as the S&P 500 lost more than three percent and fell back to the April lows. Large-scale sales opened the European session after the Japanese Nikkei lose almost 4%.
There are several reasons for falling markets. Firstly, companies report massively on the decline in revenues. Secondly, the tightening of the Fed's monetary policy, which leads to a decrease in liquidity, begins to affect, and thirdly, the strengthened dollar also plays its role. Foreign investors practically do not buy government bonds and the US national debt is slowly but steadily transforming into domestic.
At the same time, business activity indicators do not look weak at all. Unlike the eurozone, PMI Markit indexes showed growth in the services sector and in the manufacturing sector, the composite index rose from 53.9 pp to 54.8 pp in October.
Today, reports on the trade balance and durable goods orders for September will be published. Negative data can worsen expectations and contribute to a further decline in markets. Under current conditions, we should expect growth in demand for gold and Japanese yen and the dollar will look stronger than European currencies.
Eurozone
The pressure on the euro continues unabated. Following the PMI Markit indices, in September. It turned out to be no better. The index of business optimism in Germany fell from 103.7p to 102.8p in October. The worst result was shown by all of the components including the manufacturing sector, trade and the services sector, and only the construction sector came in positively, smoothing the overall negative.
There is a weakening of business activity that cannot be ignored, and it began even before the ECB began its normalization policy. In fact, the current data negates all the optimism accumulated over the years of soft monetary policy and worsens the euro's position in the long run, as they question the ability of the eurozone economy to withstand tightening financial conditions without a recession.
You also need to keep in mind that the trade war unleashed by the United States, beats the European economy much stronger, added to direct demands in damaging your interests by abandoning Iranian oil or Russian gas, in order to assume that the political pressure on the euro will also increase.
The development of the situation gives Mario Draghi a chance not to raise the rate until the end of his tenure as head of the ECB. His assessment of the economic situation at the end of the ECB meeting risks being worse than expected. Markets assume that the meeting will be a passing one, and any changes in policy will be announced in December. You also need to keep in mind that comments are likely relative to the situation with the budget of Italy, Draghi will not be easy not to provoke a rise in panic.
The EUR/USD pair is under pressure today. A breakthrough below support 1.1430 opens the way to 1.13 and bears are unlikely to give up the initiative in the short term.
Great Britain
Oil is trying to find support in the region of $76 per barrel and chances of that is still present. The correction with a high probability is close to completion.
Oil
Oil is trying to find support in the region of $76 per barrel and chances of that is still present. The correction with a high probability is close to completion.
