It has been a turbulent 24 hours for the global equity markets. Wall Street closed sharply lower on Monday and taking cues, Japan's Nikkei too took a more than 2 percent hit. However, the other Asian bigwigs managed to stage a recovery after starting in the red and in fact, the Indian benchmarks outperformed to close a percent higher. To understand why the investors are jittery and yet affirmative, let us rewind a bit.
Global markets skidded and finished deeply in the red Monday as investors gave up assets -- from equities to cryptos -- amid worries that the governments in the world's largest economies -- the United States and China -- might weaken the nascent global economic recovery.
MSCI's gauge of global stocks skidded over 2 percent, its biggest one-day fall since October 2020, reflecting the interconnectedness of the global markets.
On Wall Street, all major indices fell nearly 2 percent in a broad-based sell-off. The Dow Jones Industrial Average (DJIA) lost over 614 points -- its biggest one day drop since July 19. However, the index did recover during the session as it had tanked over 900 points.
According to data from Refinitiv, the Monday sell-off had wiped away over $2 trillion from the market capitalisation of work equities.
The commodity market wasn't better off either. US Oil prices had slipped as much as 1.5 percent to $71. Iron ore prices tumbled too, having fallen over 40 percent in the last three months due to curbs on steel production due to environmental concerns.
Cryptocurrency markets slumped Monday as the troubles from equity markets seeped into cryptos. Bitcoin, the world's largest digital coin, tumbled to $42,000 its lowest level since August 7 before climbing back to $43,000. Altcoins also fell over 10 percent then trimmed losses to climb back to higher levels. Even then, the cryptos lost 6 percent of the market share on Monday.
Why the sell-off?
China's Evergrande crisis: A debt crisis at China's largest property firm, Evergrande Group has shaken up the financial markets. The company is laden with debts worth $300 billion with no way to raise funds to pay its many lenders and suppliers. Experts are comparing this situation to 2001's Lehman Brother's crisis. And have warned the contagion effect of the fall of Evergrande could bring the global markets to their knees.
China government's reluctance to save the day is signalling that it may not bail out its homegrown star.
Federal Reserve meeting: Federal Reserve's meeting will begin Tuesday where the central bankers will make the narrative clearer on Fed's timeline to start tapering. The Fed buys $120 trillion in treasuries every month and now that economy is slowly recovering, the central bank wants to slowly cut down the purchases.
September is bad for stocks: September has been historically a bleak month for stocks. Last year in 2020, stocks in this month had nosedived after climbing for some time. S&P500 had closed nearly 4 percent lower for the month. In fact, according to a Forbes report, since 1945, only two months have delivered an average negative return for stocks -- September and February. And September has been the worst.
Debt ceiling: Concerns about the US debt ceiling is also affecting investor sentiment. This debt ceiling is the amount of money the government owes for spending on payments such as social security, medicare, and tax refunds. While the Republicans are refusing to raise the limit despite warnings of a US debt default, Janet Yellen had warned.
Investors were quick to migrate to safe havens: US treasuries rose, yields went down and gold recovered.
(Edited by : Abhishek Jha)
First Published: IST