Wall Street and Asian stocks fall, US dollar rises
When I think of Unplugged, my memory returns wistfully to the MTV Unplugged series of the 1990s. About a Girl by Nirvana still sends shivers of electricity down my spine. Alas, a three-day weekend did not lift the mood on Wall Street, with the only electricity available, being unplugged at the wall by investors, who continued dumping stocks, and technology in particular.
Tesla came in for attention after failing on Friday to find its listing Nirvana, being passed over for elevation to the S&P500. Tesla stock fell 21.0% overnight, although its theoretical rival Nikola (it’s not built anything yet) rose 40.0% after an investment by General Motors in a classic case of alternating current. To give some perspective, though, Tesla’s stock price has increased by over 500% this year, so the last week’s meltdown of the charging point should be taken in context. Investors need to accept that that ride will be wild and sometimes resemble a demolition derby.
The rout was not confined just to equity markets. Oil suffered multiple well bursts with prices leaking in an uncontrolled manner. On currency markets, the US dollar leapt higher with a number of major currencies, especially the euro, breaking significant supports versus the greenback. US bond yields also tracked slightly lower.
Pleasingly for precious metals aficionados, gold tested its range low near USD1900.00 an ounce, but recovered to finish almost unchanged at USD1931.50 an ounce. Given that previous equity market meltdowns had also seen precious metals get sold in lockstep, the disengagement will be particularly pleasing for bullish gold traders. I do suspect, though, that more downside pain may have to be weathered if equity markets continue South.
All in all, the price action across financial markets overnight looks very interconnected and classically haven seeking. The buy everything FOMO trade of the past six months has been more galactic then a Star Wars movie. Like any space opera, the baddies do get the upper hand at some stage in the film, before the good guys emerge victoriously and prepped for the sequel. The price action of the last week, continues to look corrective, if somewhat emotionally so. The underlying drivers of the buy everything rally, a global savings glut hunting for yield, bottomless amounts of zero per cent central bank money looking for a home and expected post-COVID-19 recovery of sorts in 2021 remain intact. So set the deflector shields to full and stay on target young Skywalker, the Force is with you.
Any data released today is likely to be swamped by the battle between good and evil on the world’s equity markets. China inflation data showed an easing of pressures this morning, YoY Inflation for August easing from 2.70% to 2.40% as commodity price pressure eased. That reduces one of the few worries about China’s recovery. In Australia, Westpac Consumer Confidence recovered to 93.80 from 79.50 in August, underling that Australia to remains on a recovery trajectory, despite the Victoria State lockdown.
Both the US and China increased the tit-for-tat rhetoric on Xinjiang and Taiwan overnight. Again, the noise from equity markets will subsume the geopolitical noise which markets are rapidly building herd immunity to as the known unknown and the new normal.
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