Market Overview: Glum Mood on Markets Sees Rotation Into Defensive

Market Analysis /
21 Nov 2018
  • Global growth worries led to heavy falls on Wall Street
  • Crude Oil plummets over 6% to yearly lows
  • Volatility Index rises sharply

It was a repeat performance of risk-aversion on US markets, with the 3 major bourses being well in the red as equities wiped out most of the gains from the year so far. The glum mood on the market is mostly due to fears that a slowdown in global growth will impact the US economy, and this is causing investors to reposition away from yield and into defensive assets. Whether these fears are justified or will come to fruition is another matter, but for the moment its clear that traders are reluctant to take on board higher yielding positions whilst doubt surrounds the global outlook.

Crude Oil was again on the receiving end of a wave of selling based on growth fears and because of uncertainty over how aggressive OPEC will be in adjusting the supply balance when it meets next month. The WTI contract closed 6.6% lower at US$53.43 per barrel.

 Comments from the White House that the US stands with Saudi Arabia further hurt the oil price today, with investors wondering whether this statement of support from the US will mean that Saudi Arabia will be more compliant with President Trump’s wishes for OPEC to maintain the status quo with regards to output levels. Is the market reading too much into this? Maybe and maybe not, but between now and the OPEC meeting in December looks set to continue in the commodities space.

Spot gold lost around one third of a percent to US$1221 per ounce, despite the general risk averse conditions which often favour the precious metal. But the stronger US Dollar performance reduced the appeal of gold, with the asset remaining rangebound for the time being.

With US equities heavily down, US Treasuries experienced increased buying flows which saw bond prices rise (and yields fall). If the market mood remains negative, then the bond prices could see further upside in coming days though much will depend on the US interest rate outlook amid the prevailing global growth concerns.

Of note today was the rise in the Volatility Index (VIX). The 14% rise in volatility to the 23 level for the index goes to show the heightened sense of anxiety on markets at the moment, and with the US Thanksgiving holiday later in the week, the thinner trading conditions could create more volatility in the days ahead.

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