Global market turbulence!
Last night, the Dow Jones Industrial Average fell for the 10th consecutive trading day, marking the longest period of continuous decline since October 1974. As of the close, the Dow Jones Industrial Average fell 1123.03 points, a decrease of 2.58%. The S&P 500 index fell 2.95%, and the Nasdaq Composite index fell 3.56%, with the decline further widening at the close.
The European stock market futures index and the Asia Pacific market futures index also saw a general decline, while gold and oil also collectively fell. The virtual currency market has plummeted, with Bitcoin plummeting by over 5% and its price approaching the $100000 mark; Ethereum plummeted by over 6%, while Dogecoin and others plummeted by over 9%. In the past 24 hours, a total of 253601 people worldwide have been liquidated, with a total liquidation amount of 702 million US dollars.
At 3am Beijing time on December 19th, the Federal Reserve announced its decision to lower the benchmark interest rate by 25 basis points, and the target range for the federal funds rate was lowered from 4.5% to 4.75% to 4.25% to 4.50%. After the Federal Reserve launched its first easing cycle in four years in September 2024, it has cut interest rates for the third consecutive time, with a cumulative reduction of 100 basis points. At the same time, the hawkish remarks of Federal Reserve Chairman Powell are undoubtedly the main reason for the sharp decline. So, how big will the real impact be?
It is worth noting that on the morning of December 19th Beijing time, the Hong Kong Monetary Authority announced a 25 basis point reduction in the benchmark interest rate to 4.75%.
Stunted by the decline
Last night, the US stock market experienced a historic moment. As of the close, the three major indexes in the United States have plummeted across the board. The Dow Jones Industrial Average fell 1123.03 points, a decrease of 2.58%, which is the largest decline since August and the second time this year that the Dow Jones Industrial Average has fallen 1000 points in one trading day. The S&P 500 index fell 2.95%, and the Nasdaq Composite index fell 3.56%. Last night, the Dow Jones Industrial Average also fell for 10 consecutive trading days, which is the longest continuous decline period since 11 consecutive trading days of decline in October 1974.
In terms of sectors, all 11 major sectors of the S&P 500 index have declined, with real estate and non essential consumer goods leading the decline.
Cryptocurrency related stocks also fell sharply, with Powell stating that the central bank is not allowed to hold Bitcoin and will not seek legal changes to hold Bitcoin, exacerbating the decline in related stocks. But some speculate that the new Trump administration may seek to establish government held Bitcoin stocks. The virtual currency market has experienced a greater decline. Bitcoin has plummeted by over 5%, with its price approaching the $100000 mark; Ethereum plummeted by over 6%, while Dogecoin and others plummeted by over 9%. The number of people who went bankrupt exceeded 250000.
At the same time, the US dollar index surged 1.22% and broke through 108. The yield of 10-year US treasury bond bonds rose nearly 12 basis points to 4.504%, and hovered around the key level of 4.5% in afternoon trading. The yield on two-year US treasury bond bonds soared more than 10 basis points to 4.348%.
In addition, Canada's major stock indices experienced their largest decline in 10 months. Toronto Stock Exchange S& The P/TSX Composite Index closed down 562.71 points to 24557 points, a decrease of 2.2%, the lowest closing level since November 5th. The yield of Canadian 10-year treasury bond bonds rose 8.2 basis points to 3.224%, following the trend of US treasury bond bonds. All ten major sectors closed down. Technology stocks fell 4.5%, while e-commerce company Shopify Inc. fell 7.3%. Major futures indexes in the European and Asia Pacific markets have all experienced a sharp decline. The trend of commodities such as gold and oil is also trending towards weakness.
Disagreement still exists
Obviously, Wall Street is pessimistic. According to the Federal Fund Futures trading tracked by the Chicago Mercantile Exchange's FedWatch tool, the likelihood of the Federal Reserve cutting interest rates again at its next policy meeting in January next year has dropped to below 10%. Gunlak, the "new bond king," said that if energy prices rise significantly, we may not see the Federal Reserve cut interest rates in 2025.
But there are also institutional investors who are concerned about another point, which is that the US economy remains strong, and Powell also mentioned this in his speech, which is the fundamental aspect of investment. CAROL SCHLEIF, Chief Market Strategist at BMO Private Wealth, said that the market's reaction to Powell's remarks was somewhat surprising. Traders hope that the Federal Reserve will not focus too much on inflation issues, but Powell has also repeatedly pointed out that the economy remains strong, especially compared to other regions in the world.
ROBERT PAVLIK, Senior Portfolio Manager at DAKOTA WEALTH in Fairfield, Connecticut, said that the market's response to the Federal Reserve was somewhat surprising, with a large amount of selling in the market. But Powell's remarks did not make the economic situation worse in the first place; Secondly, everything that has happened since the Federal Reserve took action has been largely expected.
The chief stock strategist of LPL Financial in Boston stated that excessive positions and emotions make the stock market vulnerable to selling. The significant increase in inflation expectations and related bond sales are an excuse. The executive partner of Richmond Harris Financial Group stated that the Federal Reserve played the role of Greentown by withdrawing two interest rate cuts in 2025. The market often has high expectations for interest rate cuts, and once there is even the slightest sign of a policy change, it can lead to a significant market correction. But ironically, considering the direction of the labor market, the likelihood of the Federal Reserve taking unexpected policy actions in 2025 is much higher.
Another issue worth noting is that in the short term, a significant rise in the US dollar index means a sharp decline in non US currencies, mainly the performance of the Japanese yen. Recently, the Japanese yen has shown a trend of depreciation, which may be beneficial for the short-term recovery of yen carry trades, and this direction has a positive impact on the market.
In fact, for the stock market, there are two main issues to pay attention to: first, whether there will be a wave of derivative liquidation due to market crashes in the short term, which will exacerbate stock market volatility; Secondly, in the medium to long term, will it have a significant impact on the positive expectations of the entity and trigger a withdrawal of funds.
Follow
After the Federal Reserve decided to lower US interest rates, most central banks in the Gulf Cooperation Council also lowered their benchmark interest rates on Wednesday.
Oil and gas exporting countries in the Gulf region typically follow the Federal Reserve's interest rate adjustments, as most currencies in the region are pegged to the US dollar. Only the Kuwaiti dinar is pegged to a basket of currencies including the US dollar.
Saudi Arabia, the largest economy in the region, has lowered its repurchase agreement (repo) rate and reverse repo rate by 25 basis points to 5% and 4.5%, respectively. The UAE will also lower the benchmark overnight deposit rate by a quarter of a percentage point to 4.4%.
Most regional economies have been largely unaffected by sustained high inflation in other regions and have implemented ambitious economic diversification plans to promote growth in non oil areas.
According to the national news agency on Wednesday, the Omani central bank will also lower the repo rate by 25 basis points to 5%. The Qatar Central Bank has slightly lowered its three major interest rates by 30 basis points, while the Bahrain Central Bank has lowered its overnight deposit rate by 25 basis points to 5%. The Kuwait Central Bank stated in a statement that it has adopted a gradual and balanced approach to adjusting the discount rate, and pointed out that it has lowered the discount rate by 25 basis points to 4% since September 19th.
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