Triggered by yet another slide on the Chinese stock exchange (-8,5%) on Monday, all world stock exchanges suffered severe and correlated losses on the same day (between 4% and 7%), proving that when the panic it spreads there are no analyzes and fundamentals that hold. More and more often the movements are then amplified by the use of leverage by many operators who therefore have to exit hastily when the market turns against them and by the increasingly massive presence of automatic trading systems that move like a herd of bison.
Markets decorrelated on Tuesday, Shanghai continued to plunge another -7,6%. On the other hand, the European Stock Exchanges started off positive and then found further impetus in the decision of the Chinese Central Bank to cut rates and bank reserve ratios together. The German DAX index recovered almost 5 points, the Italian FTSE-MIB 5,86%.
For its part, the American S&P 500 index, after getting off to a flying start, progressively slowed down to even end up in negative territory (-1,35%). With this further decline, the American index puts together a negative streak of 5 days in constant loss, leaving almost 11% on the ground, things that have not been seen since the days of Lehman Brothers. The nervousness of the markets is evidenced by the VIX index which in these two days has gone from 28 to 36 with an intraday high yesterday of 53. The impression is that the move by the Bank of China is still not enough to appease the markets, even if US stock market levels now look very interesting.
This very turbulent climate reduces the probability of a US rate hike at the September FED meeting and this has significantly weakened the dollar, which with intraday movements of unusual magnitude stopped tonight at 1,1517 against the EURO, just above the static resistance in area 1,1480-1,1500. It is a very important critical level to monitor in the coming weeks. All this volatility has left European government spreads unperturbed, in this sense Draghi's QE has not achieved the objective of making inflation resume but for the moment it has stabilized the government bond markets.
