Very strong correction on the equity and commodities markets this week, with an unusual fall of nearly 6% on the US indices (S & P500) and 5% for the Stoxx600NR. This is due to US 10-year yields, which remain above 2.8%, in the wake of US unemployment statistics for the month of January, which shows signs of inflation on wages.
Huge Sell-off on UX indexes (S&P500) : weekly data
The risk envisaged by the markets is a bond Krach in the US, which could spread rapidly to other regions, ie a very rapid rise in long-term rates, which corresponds to a sharp fall in bond securities, which could cause considerable losses in the financial system (hedge funds, banks ...) and weaken highly indebted countries with a sharp increase in the debt service.
The speed of the rate hike is at least as important as the absolute level of interest rates. This return of inflation expectations could also have an impact on the FED's policy, which could consider opting for a faster recovery of short-term rates in order to avoid an overheating of the economy. This has had the effect of rapidly lowering the price of assets, stocks and commodities which could be enough to calm the game in the coming weeks in terms of fears about inflation. In addition, the January statistic could be revised or reversed in February, and therefore requires confirmation.
But the correction is also due to the excesses of the US market, which was recently artificially overvalued by the announcements of tax cuts by President Trump. The correction is very brutal, but ultimately healthy.
Volatility surged (ETN iPath VXX) : weekly data
On the other hand, Europe is currently better off in this phase due to the fact that the need for correction is much lower, and that the economic cycle is much less mature.
The current decline will therefore be an opportunity to return to the French or European market, but we must first wait for signs of the end of decline, including the decline in volatility.
Gold did not really benefit from this downturn, because of the rise of the dollar.
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Very strong correction on the equity and commodities markets this week, with an unusual fall of nearly 6% on the US indices (S & P500) and 5% for the Stoxx600NR. This is due to US 10-year yields, which remain above 2.8%, in the wake of US unemployment statistics for the month of January, which shows signs of inflation on wages.
Huge Sell-off on UX indexes (S&P500) : weekly data
The risk envisaged by the markets is a bond Krach in the US, which could spread rapidly to other regions, ie a very rapid rise in long-term rates, which corresponds to a sharp fall in bond securities, which could cause considerable losses in the financial system (hedge funds, banks ...) and weaken highly indebted countries with a sharp increase in the debt service.
The speed of the rate hike is at least as important as the absolute level of interest rates. This return of inflation expectations could also have an impact on the FED's policy, which could consider opting for a faster recovery of short-term rates in order to avoid an overheating of the economy. This has had the effect of rapidly lowering the price of assets, stocks and commodities which could be enough to calm the game in the coming weeks in terms of fears about inflation. In addition, the January statistic could be revised or reversed in February, and therefore requires confirmation.
But the correction is also due to the excesses of the US market, which was recently artificially overvalued by the announcements of tax cuts by President Trump. The correction is very brutal, but ultimately healthy.
Volatility surged (ETN iPath VXX) : weekly data
On the other hand, Europe is currently better off in this phase due to the fact that the need for correction is much lower, and that the economic cycle is much less mature.
The current decline will therefore be an opportunity to return to the French or European market, but we must first wait for signs of the end of decline, including the decline in volatility.
Gold did not really benefit from this downturn, because of the rise of the dollar.