Who increased the risk of a global crisis

/Pogled.info/ This Monday was called “black” in the world economy. Why did the stock markets start falling one after the other, like houses of cards?

Japan’s Nikkei fell 12.4% after the previous day’s trade. There has not been such a decline since 1987. After that, Asian markets began to fall – Taiwan, Hong Kong, Istanbul. After that, European markets fell sharply. And several events started a series of falls at the same time. It all started last week – in the US.

“The decline in global stock markets began after the release of weak data on the US labor market on Friday, which increased the likelihood of a recession in the country. Additional pressure on the US stock market was caused by a 32% drop in the price of Intel securities late last week on the back of a disastrous financial report for the second quarter of 2024. Also over the weekend it emerged that The sale of shares of “Apple” was from one of the main shareholders of the company, Warren Buffett. In addition, an unexpected increase in the main rate of refinancing in Japan was added to the “spiral effect”: investors began to get rid of Japanese assets,” said Vladimir Chernov , analyst.

The US released data on unemployment, which turned out to be the highest level in the past three years. Chapter 11 bankruptcy filings rose to a 12-year high as the Federal Reserve kept interest rates unchanged for eight consecutive meetings.

Almost simultaneously with fears that the US economy would go into recession before the Fed cut interest rates, the Bank of Japan unexpectedly raised its key interest rate, a decision that was very painful for the market local stock, especially for Japanese exporters. Japan’s Nikkei, which suffered its biggest fall since 1987, led most Asia-Pacific boards. There was a domino effect: sales spread to Europe and Turkey, and the Moscow Stock Exchange index did not stand aside, although its loss compared to foreign benchmarks was moderate,” said Alexander Bakhtin, strategist investment.

The fall in global stock markets also has a high speculative component, as the index reached its highest level in the past four years and reached the values ​​since the start of the pandemic in 2020, Chernov said.

The main question that arises now is: what will be the effect? Is this crash temporary and will the markets recover quickly or is this the beginning of a new global crisis?

An important indicator, the VIX (fear index), jumped to 37 earlier in the week, about three times higher than 13 in mid-July.

“Strong gains in the VIX have often been accompanied by turbulence that extends beyond equity markets in the past. There was a three-fold increase in the VIX earlier in 2011 during the European debt crisis, and a five-fold jump in the VIX at the same time as the crisis of 2008 and 2020,” said Alexander Potavin, analyst.

As a result, the situation looks like this now: the VIX has tripled, the Nasdaq-100 stock index (which includes the biggest tech giants) is down almost on 17% from the highest levels in July, the safe Japanese yen is strengthened. by 12% and the dollar weakened by 2.5%.

“The last time such a large increase in the volatility index was seen in March 2020 – this was the peak of the global pandemic, when the economies of many countries went into quarantine. After that, the VIX jumped to 80, the Nasdaq fell 30%, the Japanese yen jumped 10% and the dollar weakened 4.5% locally. As we can see, the magnitude of the problems now and then is different. From the spring of 2020 to today, the growth of the VIX index at the local level has not exceeded 38, and as a rule, the period of high volatility does not last longer than two weeks. Therefore, we can expect that this week could be decisive for the global currency and stock markets. Either we see a local risk, or this is the beginning of a new medium-term downtrend,” said Potavin.

According to him, the most interesting investor is Warren Buffett, who increased the share of cash in his portfolios at the end of the second quarter – and this is the basic rule in all crises.

Berkshire Hathaway’s cash hit a record high of $277 billion after the billionaire investor dumped $76 billion in Apple stock in a surprise move.

Experts are confident that the world’s central banks will still act and stop the crisis from getting worse.

However, central banks have ways to prevent another global crisis by calming the turmoil that has begun in stock markets. First, there is hope that the Federal Reserve will have an emergency meeting to cut the most important rate, which could calm the global financial markets. Chicago Federal Reserve President Austin Goolsby says the Fed will respond to signs of economic weakness by cutting its key interest rates.

“It is unlikely to lead to a global financial crisis, but it could exacerbate some problems – at least in the financial sector of several countries or in individual financial institutions.” Every country has weaknesses These are high debt burden, problems in the banking industry, inflation, population and others. We do not fully know the level of sensitivity of individual sectors of the economy to external factors. the imbalances in the global economy today are high,” says Ksenia Bondarenko, Associate Professor in the Department of Global Economics at the Faculty of Global Affairs. International Economics and Politics at the Graduate School of Economics.

To put out the fire without leading to a new global economic crisis, it will be necessary to reduce the debt burden around the world – above all in the SA, and significantly reduce geopolitical tensions, the expert believes. But neither the first nor the last is expected soon. If serious problems threaten the global economy, it is very likely that the G7 countries will be released again by introducing a lot of liquidity in the form of quantitative easing, Bondarenko said. .

As for Russia, the turmoil in the global stock markets also affected the Moscow Stock Exchange index, but the decline was smaller – 2.6%. “Although our market separates itself from the capital of the West in 2022, it is still dependent on what happens in the global stock markets through falling commodity prices amid concerns about the state of the global economy. Exporters of raw materials make up about 60% of the Moscow Stock Exchange index by capitalization, and for them the decline in raw material prices is a negative factor, especially with the very strong ruble ,” explained Nataliya Malikh, head of Finam. stock market analysis department. Oil prices fell to $76 per barrel.

As for the exchange rate of the ruble, it still lives a life of its own: the OTC market of the Russian Federation has become completely opaque, notes Potavin. The rate of the dollar fell to 84.8 rubles.

Translation: V. Sergeev