European markets are expected to pare Monday’s losses when they open this morning following similar moves in Asia overnight. That said, not all indices have experienced the same respite and another decline of more than 4% in China is likely to keep investors on edge on Tuesday.
Yesterday’s moves were quite clearly overdone and were far more reflective of the fear in markets right now given the uncertainties surrounding Chinese growth and its impact on emerging markets. This coming at a time when investors are already rattled about the impending rate hike from the Federal Reserve has clearly created some serious instability in the markets.
The result has been a significant correction in many markets which is actually very healthy, although there was nothing normal or healthy about the size of the moves we saw in the markets yesterday. While we may not necessarily see a repeat of yesterday in the coming days, volatility is likely to remain and investors are likely to be prone to further panic.
It is surprising that the People’s Bank of China has not stepped up support following the moves on “Black Monday” either with a cut to interest rates or the reserve requirement ration for banks. Many had expected the central bank to do so over the weekend which may suggest that it has become more reluctant to intervene just for the sake of the market, despite doing so already this year.
There are a number of key data points scheduled for release today which may offer a distraction to ongoing instability in China. German GDP and Ifo business climate figures will be released this morning, while later on in the US we’ll get the latest services and composite PMI readings as well as new home sales and consumer confidence survey data.
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