Bitcoin Tailwind: Next Stock Market Sell-Off Could Mirror Crisis-like Plunge
- A plunge that followed Lehman brothers’ collapse could arrive as soon as late August
- US labels China as a currency manipulator, PBoC refutes such claims
US stock futures recouped some of their losses Tuesday after China backed off from a further escalation in currency dispute and trade war with Washington.
The Dow Jones Industrial Average, S&P 500, and the Nasdaq Composite suffered their worst day of the year Monday as China let their yuan depreciate after President Trump threatened to place 10% tariffs on another $300 billion Chinese goods, starting September.
After a period of heavy selling at the start of the week, when China stepped in to steady yuan, it helped soothe investors concerns of a global concern war.
But investors shouldn’t take solace from this rebound, warned Nomura. The firm said the next sell-off could resemble a crisis-level plunge that followed Lehman brothers’ collapse.
“At this point, we think it would be a mistake to dismiss the possibility of a Lehman-like shock as a mere tail risk,” Nomura macro and quant strategist Masanari Takada said in a note Tuesday. “The pattern in US stock market sentiment has come to even more closely resemble the picture of sentiment on the eve of the 2008 Lehman Brothers collapse that marked the onset of the global financial crisis.”
We may well be at the most dangerous financial moment since the 2009 Financial Crisis with current developments between the US and China.
— Lawrence H. Summers (@LHSummers) August 5, 2019
The market plunge, the firm predicted could arrive as soon as late August.
Nomura’s sentiment data shows a “deterioration in supply demand for equities and a sharp downward break in fundamentals” among the big players like hedge funds.
The US stock index futures were lower Wednesday morning as the People’s Bank of China (PBOC) set the official midpoint reference for yuan at 6.999 just an inch away from the psychological importance 7-per-dollar level.
US Treasury declared China a currency manipulator, however, China’s central banks said it has “refused to engage in a competitive devaluation” despite the year-long trade war with the US.
China dropped the price of their currency to an almost a historic low. It’s called “currency manipulation.” Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!
— Donald J. Trump (@realDonaldTrump) August 5, 2019
This could very well mean US policy makers may feel justified in doing exactly the same, artificially wearing their currency.
However, recently, Adam Posen, president at Peterson Institute said there's nothing trump can do about the strong dollar while Steve Englander, Head, Global G10 FX Research and North America Macro Strategy at Standard Chartered Bank lays down what would it do and buy.
If the US were to intervene, the bank expects the country would be on its own, would shock and weaken the USD by 2% or more, most likely be in the EUR and JPY — the most liquid and freely traded, and would require a commitment to USD 200-400 billion.
Moreover, other central banks would push back, “increasing the needed intervention size and diminishing the exchange rate effects.”