Fundamental Weakness Spreads Across Global Markets
2023.03.02 10:30
The January rally in global markets has proven unsustainable, as inflation shows no signs of stopping in the US and Europe. This may lead to the collapse of markets, with central banks increasing rates.
Indicators of a market collapse are already emerging, such as the rising yields on US and EU government bonds and falling bond prices, leading to an inverted yield curve. This has previously been an indication of a recession.
Moreover, the impact of China on stock exchanges has dissipated. In February, Chinese manufacturing activity expanded at its fastest rate since April 2012 due to the lifting of anti-Covid restrictions, resulting in a leap in the manufacturing purchasing managers’ index. This exceeded the estimated rate and reached 52.6 from 50.1 in January, according to the National Statistics Office.
However, the Chinese economy faced one of its worst years in almost half a century due to strict enforcement of the ‘zero tolerance’ Covid policy, which reduced production and consumption.
Despite these warning signals, markets are not currently pricing in a recession. If one does occur, it will be a significant shock.
The market that is likely to record the greatest collapse will be the US, which has a Price-to-Earnings Ratio higher than the European markets and which has an aggressive central bank ready to raise rates up to 6% if necessary.
From a technical point of view, we note that the is now constantly below the fast moving average of 13380 and is a candidate for a rapid collapse, and the is in a similar situation.
The is in much better shape thanks to the ECB being more dovish than the Fed at the moment. However, it should be noted that on February 24th there was an important decline of the Dax supported by high volumes: it is not a good sign.
Another candidate for a major crash is .
In the last year, Bitcoin has shown that it has an excellent correlation with the Nasdaq, so I also expect a collapse for the most important cryptocurrency in the world that will take it to the 10,000 Area.
The crypto world is proving to be unreliable, with constant defaults of exchanges and related companies. Furthermore, central banks are organizing to create their own digital currencies that will aim to destroy Bitcoin.
To make the most of the upcoming market crash, I decided to bet on the Vix.
The , also known as the fear index, uses options on the S&P 500 index as its underlying: it has a negative correlation with the index: if the S&P 500 goes up, the VIX goes down and vice versa.
