CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading CFDs with this provider.You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

Trader thoughts — the long and short of it

Volatility is still elevated. It's one moment up and one moment down. Price action and sentiment is shifting all in the space of a single session.

Source: Bloomberg

The extreme vacillations in price and sentiment are wrung by the twisting fortunes of the global economy's two major forces: the Chinese and US economies. Day-to-day, markets are playing out like a game of pong, with one side rising only to strike the ball in the opposite direction to send the other diving lower. Once again, a sharp rally in China's equities just prior to its lunch break yesterday fizzled throughout the day, to the chagrin of nonplussed European and North American equity traders. The remainder of Thursday's session since has seen a sea of red, as the bears one again have-their-way with the market.

Several causes have been used to rationalise last night's drop in US equities, ranging from fears regarding poor earnings and soft US housing data last night. Nothing major has thus far leapt out as a catalyst however, seeming more like a continuation of the very choppy trend we've watched play out for weeks. Havens maintained their trend higher amidst the risk-off sentiment, pushing US Treasuries (and bond markets in general) higher. The USD has rallied on this basis, diving into the 1.13 handle against the EUR and the 1.28 handle versus the GBP. While Gold prices have remained steady, as traders maintain their hedge against fiat currency risk.

The Australian Dollar has naturally suffered from the stronger greenback, to be squashed toward the 0.7050-mark. The Kiwi has endured a similar fortune, though the other of the Big 3 commodity bloc currency, the CAD, rallied after he Bank of Canada hiked interest rates overnight. The ultimate growth-versus-risky proxy, the AUD/JPY, has plunged to around 79.30, epitomising the prevailing fears regarding global growth and equity market bearishness. And of greatest global significance, the USD/CNH continued its apparently inexorable run toward the 7.00 handle, breaking through 6.95 to trade close to year-to-date highs.

Rates and currency markets will remain in focus over the next 24 hours, in preparation for the ECB's monetary policy meeting. The ECB won't materially change policy at this meeting: stimulus will stay on, and rate settings will remain negative. What will be watched for however, is comments on the unfolding political-economic issues regarding Brexit and the Italian fiscal problem, and more importantly, the central bank's plans to implement its Quantitative Tightening (QT) program. The expectation is currently that the ECB will flag the beginning of the end to this program in December this year, all the while reassuring markets that interest rates will stay where they are -- effectively at 0% -- until well into 2019.

The deepest cause of the volatility experienced in global financial markets is the tighter liquidity conditions, aided just as much by the ECB as the US Federal Reserve. A profound reaction to any mention by the ECB of its QT intentions isn't greatly expect tonight, however it's practical implications in the medium-to-long term sow the seeds of the sort of volatility heaped upon markets over the last several weeks. Tonight's ECB meeting is being treated as potentially another reading of the last rites to the easy money era. The realisation amongst markets participants is that (finally, after a decade) the ability to gorge on free money is over, tipping the risk/reward ledger out of the favour of long booming global equity markets.

The problem is, with the necessity to tighten global monetary policy in the face of better global growth and higher inflation risks, the global economy is being threatened on several fronts from a breakdown in international geopolitical and economic ties. The day-to-day commentary on Wall Street is centred on this dynamic, and it played out again in last night's major equity sell-off. Growth/momentum stocks in US tech caused the Nasdaq to sustain the greatest losses across US indices overnight, but fears about slower earnings growth from weaker economic fundamentals also pushed the S&P 500 and the Dow Jones in the realms of 2% lower. The next 48 hours become increasingly significant as the losses in North America mount: tech giants -- those who have pushed this market higher-and-higher -- Microsoft (who this morning reported record profits in the first quarter) Amazon and Alphabet are report earnings, with the reaction to them potentially deciding the view on what the futures holds for US equity markets.

SPI futures portend a very challenging day for the ASX 200, with markets pricing in a 79-point drop at today's open. Zooming out to the bigger picture as it currently stands, there are few glimmers of hope for Aussie equity bulls now. The major drivers of upside are all struggling: the banks are battling potential regulatory crack downs and a slowing local property market; major healthcare stocks, with their stretched valuations and low yields, have lost the bid of momentum investors; and the miners are battling fluctuating commodity prices amid concerns regarding the trade-war and global growth. Opportunities always exist for the savvy reader and investor, of course, but extending the rationale enunciated and looking at the technicals as they gradually unfold, signs of a bearish trend in the ASX 200 are progressively emerging.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by writer

  • Aaran Fronda
    London
  • Andreas Ruhlmann
    Ginevra
  • Angela Teng
    Singapore
  • Anzél Killian
    Johannesburg
  • Barbara Vacher
    Paris
  • Becca Cattlin
    London
  • Ben Kelly
    London
  • Callum Cliffe
    London
  • Chris Beauchamp
    London
  • Christopher Vecchio
    New York City
  • Christos Maloussis
    Ginevra
  • Claire Williamson
    Johannesburg
  • Daniel Dubrovsky
    San Francisco
  • Daniel Smyth
    London
  • Daniela Sabin Hathorn
    London
  • David Song
    New York City
  • Elizabeth Díaz Zúñiga
    Johannesburg
  • Franz Gmeiner
    Johannesburg
  • Grethe Kemp
    London
  • Ilya Spivak
    New York City
  • James Stanley
    New York City
  • Jeremy Naylor
    London
  • Jingyi Pan
    Singapore
  • John Bollinger
    Chicago
  • John Kicklighter
    New York City
  • Joshua Mahony
    London
  • Joshua Warner
    London
  • Justin McQueen
    London
  • Kathryn Gaw
    London
  • Katya Stead
    Johannesburg
  • Kelvin Ong
    Singapore
  • Kyle Rodda
    Australia
  • Mahmoud Alkudsi
    London
  • Margaret Yang
    Singapore
  • Martin Essex
    London
  • Michael Boutros
    New York City
  • Monte Safieddine
    Dubai
  • Nick Cawley
    London
  • Nyandabeh Ella Vincent
    Chicago
  • Pam Claasen
    Johannesburg
  • Patrick Foot
    Bristol
  • Paul Robinson
    New York
  • Reo Liao
    Australia
  • Rich Dvorak
    Chicago
  • Richard Snow
    Johannesburg
  • Sam Dickens
    London
  • Shane Walton
    Australia
  • Shannon Correia
    Johannesburg
  • Shaun Murison
    Johannesburg
  • Sibulele Sikuni
    London
  • Tammy Da Costa
    Johannesburg
  • Ted Jackson
    Chicago
  • Thomas Westwater
    New York City
  • Timothy Joubert
    Johannesburg
  • Travis Robson
    Johannesburg
  • Victoria Scholar
    London
  • Victoria Scholar
    London
  • Warren Venketas
    Johannesburg
  • Will Hall-Smith
    London
  • Yeap Jun Rong
    Singapore

This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.

window.$CQ = window.jQuery; window.IG = window.IG || {}; window.IG.cq = window.IG.cq || {};
{"@context":"http://schema.org","@type":"NewsArticle","mainEntityOfPage":"https://www.ig.com/za/news-and-trade-ideas/indices-news/trader-thoughts---the-long-and-short-of-it-181024","headline":"Trader thoughts — the long and short of it","image":{"@type":"ImageObject","url":"https://a.c-dn.net/c/content/dam/publicsites/igcom/uk/images/ContentImage/BG_trader_NYSE_stock_market_-090-9.jpg/1538727790194.jpg","height":3840,"width":5760},"publisher":{"@type":"Organization","name":"IG","logo":{"@type":"ImageObject","url":"https://a.c-dn.net/c/etc/designs/onedomain/20082020/images/IG-60x70.png","height":60,"width":60}},"datePublished":"2018-10-24T23:31:00+0100","dateModified":"2018-10-24T23:31:00+0100","author":{"@type":"Person","name":"Kyle Rodda"},"description":"

Volatility is still elevated. It's one moment up and one moment down. Price action and sentiment is shifting all in the space of a single session.

\n","isAccessibleForFree":"True"} if(document.cookie.indexOf('userGdprLevel={"userLevel":"1"')>0){window["optimizely"]=window["optimizely"]||[];window.optimizely.push(["skipPageTracking"]);window["optimizely"].push(["optOutThirdPartyCookies"])}