The passing week has begun to remind us of what happened in March this year, namely the widespread panic in the financial markets and the return to the most liquid assets, including cash in the form of the US dollar.
Over the past seven days, only the VIX index contract and the natural gas contract and the US dollar have gained from popular markets. All other asset classes have been falling and oil prices and German DAX have fallen the most. WTI oil declined by about 10 percent and DAX by about 8 percent. The other European stock markets also seem to be heading for the worst month since March, in the face of concerns about economic recovery in Europe. As the epidemic developed, individual countries were forced to introduce new restrictions to limit the spread of the pandemic. At the same time, the weak economic data showing a sharper-than-expected fall in household consumption in France and retail sales in Germany in September added to the worries.
In the United States, the weakest index this week may turn out to be the Dow Jones Industrial Average, which is already down by about 6% overall. S&P 500 is down by 4.5% and Nasdaq 100 by almost 3.5% on a weekly basis. For DJIA, this may be the worst result since March, so it seems that investors could start to react as they did at that time. It was this week that a phenomenon occurred, which only appeared in March. Namely, during one session stock indices, contracts for American bonds and gold fell. This clearly shows the desperation to return to cash. Thus, the contract for the U.S. dollar index is growing by more than 1 percent on a weekly basis.
As the month ends, it is also worthwhile to look at the changes during this period. Here, in turn, the contract for natural gas comes to the fore. This instrument gained almost 30 percent in October, and since the beginning of the year it has grown almost 50 percent. Meanwhile, on a monthly basis, it is oil that turns out to be the biggest loser with a drop of over 11 percent.
Next week, the financial markets will continue to live with the epidemic developing in the northern hemisphere and the elections in the United States. However, contrary to expectations of volatility from the options market during the Trump-Clinton clash, now the options market is not valuing huge price spikes. On the contrary, as on the scale of the event, volatility seems to be very moderate.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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