FxWirePro: What is triggering stock market rout?

2018 is proving to be the worst year for the stock market since the ‘Great Recession’ of 2008/09. Let’s take a look at the stock market performance of major indices around the world,

• Australia’s benchmark stock index ASX200 is down 4 percent this year. Down more than 7 percent over the last three months.
• Hong Kong’s benchmark stock index, Hang Seng is down more than 15 percent YTD.
• India’s benchmark Nifty50 is down 3.3 percent YTD, down almost 9 percent in last one month.
• China’s benchmark stock index is down more than 21 percent, so far in 2018.
• Japanese benchmark Nikkei 225 is down almost 3 percent YTD. Down more than 7 percent in last one month.
• European blue-chip index Eurostoxx50 is down 9.3 percent YTD, down almost 9 percent over the past three months.
• German benchmark DAX is down almost 13 percent YTD, down more than 9 percent over the last three months.
• UK’s benchmark FTSE100 is down more than 9 percent in 2018 so far.
• United States benchmark stock index S&P500 is up just 2.5 percent YTD, down more than 6 percent in last one month. United States tech-heavy index NASDAQ100 is up more than 11 percent YTD but down more than 6 percent in last one month of trading.

So, what is fueling this rout?

In one word - ‘Uncertainties’ and at the moment, there is just too much of it. Markets don’t like uncertainties, even if the final outcome could be a positive one. Let’s take a look at the uncertainties hitting the market,

• The trade war is one of the biggest sources of uncertainties as the outcome is very difficult to gauge and might not get reflected in hard data for two to three years. In addition to that, the trade war is having an impact on the Chinese economy, which is the second largest and with a lack of transparency in data from China, it is enhancing the uncertainties. The trade war is also disrupting the existing global supply chain, which has started showing its signs in the corporate balance sheets.
• Another big source of uncertainty is the ‘Brexit’ - the outcome of which at this point in time is extremely difficult to gauge.
• Political fragility across the EU is another source of uncertainties, where Brussels is at loggerheads with the populist governments in the region such as Italy, Poland, Hungary, and the Czech Republic over budget deficits and immigration.
• Iran sanctions are another major source of uncertainty not just because of its impact on oil price but in this battle the United States is fighting against EU+ China+ Russia.
• Now add some other like the recent killing of the reporter at Saudi Consulate, higher interest rates in the U.S., EM slowdown, looming U.S. mid-term election to the mix.

Now, it is clearer, why investors are nervous about parking money in the stock market where volatility is rising.