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What caused stock market panic selling?

Stock Market Panic Selling

The situation on global financial markets remains disturbing, and although any exchange collapses are not observed both with another jumps in price volatility, we do have a feeling that all these "charms" are still ahead. At least we would not exclude that in March one should expect a pretty hot day for global markets in the form of new stock market panic selling and local bumpiness on the currency and commodity markets.

The today's stock exchanges are in a minor mood. Oil prices remain at low level. Stock market fall, European indices are in a serious disadvantage, the U.S. futures are also in the "red zone".

Anyway, until uncertainty about the future strategy of the Chinese Central Bank regarding the exchange rate of the yuan will remain, and until strategy of the U.S. Federal reserve policy regarding interest rates will become apparent (that is, whether the fed is ready to take a break or regardless of the risks they intend to increase), the stability of the financial markets will remain under the threat.

It is worth noting that the priority of the identified problems increases the importance of the financial summit in Shanghai, as monetary officials of all countries-participants G20 also wonder what will happen next and where to go. This is not surprising, since all the attempts by the monetary authorities to solve the problem of global imbalances has not yet lead to the desired result and these imbalances only grow with renewed vigor.

The impression is that no one knows how to proceed. If the Central Bank in Europe and Japan intend to deal with their economic problems due to the constant monetary incentive (including lowering interest rates to even more negative values), then this strategy will provoke a weakening of the Euro and the Yen. In this case, arises the question about the answer of the Chinese? Of course, by the weakening of its currency, and the depreciation of the yuan, as we see is now giving too negative emotions to investors, which are manifested in the stock market panic selling and it collapses.

Stock market fall

In other words, the Federal Reserve may take certain actions to limit the growth of the dollar, and maybe come up with another monetary thing to weaken it significantly. As you know, it's a complete dead end, and we have nowhere to go.

Therefore, any attempt to manipulate exchange rates or the new decision on monetary stimulus, be it the fed, the Bank of Japan, European Central Bank and other "stimulant regulators", will only temporarily improve the situation on the markets (perhaps a year or two) and even stimulate the creation of another financial bubble, but are unlikely to create conditions for sustainable economic growth in the developed countries.

However, without this condition to avoid further expansion of global imbalances in the current model of the world financial market is impossible, because sooner or later other countries, whose economies are classified as developing (incidentally, it's not just Russia, but also China) will come to the conclusion about the need to escape from the trap of the monetary policies of the major global Central banks and try to create an alternative workable system.

And the faster the world's monetary authorities are aware of the need for radical changes, the better it will be. Otherwise, in the foreseeable future shaking of the world financial markets will grow into the greatest financial earthquake, with unpredictable results for the global economy.

By Chieffinancing 25.07.2016

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