At the end of September, the overall decline in the UK’s stock, bond, and currency exchange market triggered by the country’s stimulus plan led to panic in the international capital market. Furthermore, the issues faced by major European investment banks such as Credit Suisse and Deutsche Bank have made market institutions wary of the emergence of yet another global financial crisis. These panics led to a sharp drop in global markets in late September. With the UK abandoning the relevant tax cut plan and the Bank of England's intervention in the market, as well as the market's expectation that the Federal Reserve may slow down the pace of interest rate hikes, the first two trading days of October saw a rise in global markets. Meanwhile, Hong Kong stocks also experienced a daily rise, surging up to a thousand points. However, starting from October 5, with the Fed's clarification of monetary policy and the recovery of market sentiment, the entire global market fell again, indicating that market risks have not disappeared and are still under the shadow of the American central bank’s policies.
As of the close on October 6, the three major U.S. stock indexes closed down collectively, with the Dow down 1.15%, the S&P 500 dropped 1.02%, and the Nasdaq declined 0.68%. Most of the large technology stocks fell. Twitter fell more than 3%, and Google, Apple, Microsoft, and Amazon fell slightly. At the same time, Netflix rose more than 1%, and Meta rose slightly. Bank stocks fell across the board, with Morgan Stanley, Wells Fargo, and JPMorgan Chase down more than 2%. On the other hand, the Bank of America, Goldman Sachs, and Citigroup fell more than 1%. Due to the consecutive gains in the previous two days, the Nasdaq rose 4.7% this week, the Dow went up 4.1%, and the S&P 500 rose 4.4%.
On October 6, major European stock indexes fell collectively. As of the close, the British FTSE 100 index fell 0.79% (up 1.5% this week); the French CAC40 index fell 0.82% (up 3% this week); Germany's DAX30 index Down 0.37% (up 2.9% for the week). On the same day, the euro rose 0.1% to 0.9892 against the dollar; the pound fell 0.24% to USD 1.1299. Some market participants believe that the possibility of the pound and the dollar falling to parity cannot be ruled out, because the market still yet to have the answer to the question of the sustainability of the British government's fiscal policy
Several Fed officials emphasized the central bank's task of stabilizing inflation and expressed support for the bank's stance to continue raising interest rates. They stressed that the market was wrong to expect a rate cut next year. San Francisco Fed President Mary Daly and Atlanta President Raphael Bostic warned the market on October 5 that the threshold for the Fed to slow the pace of aggressive interest rate hikes is high, and the central bank is likely to continue the rhythm of 75 basis points of interest rate hikes each time. New data showed that the number of Americans filing initial jobless claims for the week of October 1 was 219,000, higher than the expected 203,000. This was also the highest level since the last week of August and ended the two months of the downward trend. The continued rise in oil prices in recent days has exacerbated inflation concerns and has also forced the Fed to continue its tightening policy. The yield on the 10-year U.S. Treasury bond, rose more than 3.8%, and the yield on the 2-year U.S. Treasury bond, which is more sensitive to interest rates, rose above 4.2%. The U.S. dollar index fell below 110 on October 4 and recovered to 111.95 on October 6. These changes show that the capital market is still facing a pessimistic outlook under the blow of the central bank's tightening policies. In other words, the future policy direction is still a key factor in determining the market trend.
This situation continued in the Asia-Pacific market on October 7. As of the close on October 7, the Nikkei 225 index fell 0.71%, up 4.55% this week, after three consecutive weekly declines. South Korea's KOSPI index dropped 0.22% and rose 3.59% this week, ending its seven-day losing streak. Bank of Korea Governor Rhee Chang-yong said the Korean central bank does not want to follow the U.S.’ footsteps in raising interest rates "mechanically", though he also pointed out that if inflation exceeds 5%, it will have no choice but to raise interest rates. In the Southeast Asian and South Asian markets, Vietnam's VN30 index fell 3.79%, Vietnam's Ho Chi Minh stock index fell 3.71%, and more than 4% earlier. This week, the Vietnamese stock market has fallen sharply several times. It closed down more than 4% on October 3, falling more than 3% on Thursday, and 10% so far this week. This could possibly be the largest weekly decline since May. Data showed that in the five months to October 3, financial securities assets of up to VND 968 trillion were sold on a net basis (of which VND 210 trillion was sold in September alone), which is almost the same as the same period last year.
On October 7, Hong Kong stocks closed sharply lower. The Hang Seng Index fell 1.51% that day, and rose 2.9% this week; the Hang Seng Technology Index fell 3.3% that day; the new energy vehicle sector and the real estate sector both fell sharply. On October 6, the offshore RMB exchange rate fell to 7.095, and the onshore RMB exchange rate fell to 7.116 on the same day, which fluctuated slightly from around 7.10 on September 30.
Since October, although most markets are on the rise as a whole, they are mainly affected by policy expectations. On the one hand, with inflation still at a high level, the trend of central banks to raise interest rates will not weaken. On the other hand, the attitudes of the U.S. and UK governments indicate that in the face of a market crisis, countries will take measures to intervene and rescue market liquidity risks as they did during the 2008 financial crisis. Against this backdrop, risks in the global capital market are still accumulating, and market volatility will increase. Under the trend of increasingly stringent policies, the overall outlook is not exactly optimistic.
Final analysis conclusion:
With the advent of the month of October, the global capital market rose sharply at one point under the change of policy expectations. Yet, with further clarification of monetary policy, the market fell into volatility once again. All in all, market risks are still accumulating, and they are still being constrained by monetary policy.
