Global Markets: ‘Sell-Everything’ Rout Continues!

Friday’s session ended down 1.72% at 17,327.35 but momentum continued and fell to a low of 17,127 although it recovered somewhat to close just above the crucial 17,200 level support. Our market fell following the US Federal Reserve’s rate hike on September 21, 2022.

Here I will try to give you an overview of what is currently happening in global markets after the Fed hiked rates. Much of the unexpected selling pressure in our markets is due to “exceptionally weak” global signals. The US markets show a much stronger weakness. It broke its June 2022 low and is trading at its lowest level since November 2021. That means all returns for 2022 have evaporated. The and are barely trading above their June 2022 lows, below which they would also turn negative for the year. The same weakness is also spread to other markets, especially the European ones.

Stock sell-offs generally divert capital flows to one of the most popular and proven safe havens. In fact, gold is also investors’ favorite to fight high inflation. But what happens in the precious metals market when both factors are in favor of gold, ie high inflation and investors’ search for safety? On Friday, gold in the international market fell to its lowest level since April 2020, almost a 2.5-year low! That’s not what gold should do when it’s in favorable conditions to appreciate in value. It also hit a 2-year low in the first week of September 2022. All other metals are also falling sharply, while soft commodity prices are also falling.

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Oil prices, which have skyrocketed in the Russia-Ukraine war, have corrected sharply in recent weeks. In fact, Brent oil fell to around $85.5 a barrel on Friday, its lowest since the war began. Lower oil prices are definitely beneficial for India as more than 80% of our consumption is covered by imports. However, one thing to consider: What is the reason for this decline? An expectation of a global recession! If a recession does occur, the benefit of lower oil prices must be weighed against the potential loss from a slowdown. Therefore, lower oil prices due to a global recession are likely not so good for India either.

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Currently, the turmoil in the forex market is absolutely insane. All currencies suffer a massive hit against the US dollar. The prime example is the Indian rupee, which has plunged at an astounding pace over the past two sessions, topping 81 like a knife through butter. Sterling has fallen to its lowest level against the US dollar since the 1980s! The euro fell to a near 2-decade low against the US dollar on Friday. The Japanese yen, which is also considered a safe haven among currencies, is not spared either. However, the yen shot up aggressively on Thursday following Japan’s intervention in the currency market.

Cryptocurrencies have long underperformed stock markets. has fallen significantly from ~$48,000 earlier in the year to its current price of $18,800 and shows no signs of recovery. Bitcoin has also failed on the thesis of being better than gold in fighting inflation.

Obviously everything under the umbrella is being sold as the uncertainties of a global recession start to become a reality. Despite two straight quarters of GDP contraction, the US Federal Reserve continued a third 75 basis point rate hike and coupled with its dovish comment for the remainder of the year, this is sure to hurt the US even more. Rising inflation and the energy crisis in Europe are also enough to weigh on their economies, clearly reflected in the unrelenting weakness of Europe’s currencies. Winters are almost here, which will only add to their existing energy crisis.

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Where does the money go when everything is sold out? The US Dollar. It’s the only asset that’s currently attracting investors at “gigantic levels.” The (which is a basket of 6 currencies against the US Dollar) rose to its highest level in 2 decades, above 112 on Friday. The thing is, the aggression with which the Fed is raising interest rates is pouring all the money into the dollar to buy US-backed securities, which serve two purposes — the sovereign security of the world’s largest economy and one lucrative returns on their parked money. As a result, gold is also losing its luster against the US dollar as it does not offer a fixed rate of return.

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