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Markets fell today on weak global cues, washing away a strong performance by Infosys. Though Infosys and other IT counters have performed well, other stocks have been hit by weak signals coming from international markets. Under better external environment, Infosys would likely have moved more than the 6% jump witnessed after the results, and even more so after a bonus announcement.but
Markets are once again reacting more to global cues rather than domestic issues. US markets had their biggest single-day fall in 2014 on Thursday October 9, 2014 only a day after they had their best rally on Wednesday. Dow Jones Industrial Average plunged 334 points or more than 2%. It is thus important to check what is giving global markets the jitters.
Here are five reasons why global markets are falling.
• The epicentre of all the troubles in the financial world currently lies in Europe. Analysts say Germany, Europe’s biggest economy, is on the brink of recession after it reported its weakest export growth numbers in five years. Most of Germany’s trading partners are other countries in the Euro Zone and Russia. A weak Europe is strengthening the US dollar, which in turn is threatening export growth from USA.
• Oil prices which are a good indicator of economic activity are headed southwards. Benchmark Brent crude pierced the $90 a barrel mark on concerns of a slowing global economy, especially China and Japan. A fall in metal prices globally also indicate a slowdown. Bloomberg Commodity Index which tracks 20 commodity prices has touched a four year low. Falling prices of metals, oil and agricultural products is even more serious if one looks at the fact that they come on the back of high level of supports from central banks across the globe.
• Quantitative Easing which flooded the US and other markets with liquidity is coming to an end. Money is finding its way back to the US, making it that much more difficult for global markets, especially Europe and developing countries. The Fed is expected to end its bond buying program by the end of this month.
• Debt levels are back to pre-meltdown levels. Commenting on an International Organisation of Security Commission report, noted columnist Stephen Bartholomeusz [LINK 1] has said that this year high-yield bond (the riskiest ones) issuances will touch a historic high of $617 billion. Subordinated bond issues will be close to pre-crisis levels of $297 billion. Leveraged financing via junk bond markets are at pre-crisis levels of $119 billion. Issues of CDO (collateralised debt obligations) which were notoriously known as CDO squared products peaked in 2007 at $53 billion. This year IOSCO expects about $68 billion of CDO squared products to have been issued.
• Political unrest and regional wars in Ukraine, middle-east and the latest developments in Hong Kong are adding to the already jittery investor sentiment.
Markets over the span of one month have clearly moved from a risk-on mode to a risk-off one.
