news

한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina

Veteran market and economic watcher Ed Yardeni, who coined the term "bond warriors" in the 1980s to refer to investors who push up interest rates to influence government decisions out of concern about the country's fiscal situation, said on Monday that the current global stock market sell-off is similar to the 1987 crash, when investors feared a downturn but it was avoided.

Yardeni told the media on Monday:

“So far, it’s been very reminiscent of 1987, where the stock market crash basically happened in one day, and that meant we were in or about to go into a recession. But there wasn’t a recession at all. It was really about market internals.”

Wall Street News mentioned on Monday that the recent stock market crash was partly due to the reversal of the "carry trade" triggered by the narrowing of the interest rate differential between the United States and Japan. The Bank of Japan unexpectedly raised interest rates last week, and the Federal Reserve released a signal of interest rate cuts after the meeting last week. The Fed's September interest rate cut was almost fully priced in. The "sell yen, buy dollars" carry trade, which was previously the most popular in the foreign exchange market, no longer has its "charm", and investors have begun to exchange their dollar assets back to yen. Another major driving force is that under the "recession trade", the funds that have been grouped together in technology stocks have been withdrawn significantly. As the continued weakening of US economic data has triggered recession concerns, the US stock market has entered the risk-off mode, and the funds that have been "grouped together" with technology giants have begun to withdraw, triggering a rotation of technology stocks and small-cap stocks.

The VIX index, a fear index that measures the volatility of U.S. stocks, rose above 65 during trading on Monday, hitting a new high since the COVID-19 outbreak.

“I think what’s happening now is the same internal market dynamics that we saw in 1987,” Yardeni said Monday. “A lot of this sell-off has to do with the unwinding of carry trades.”

When the stock market crashed in 1987, Greenspan had just taken office as the chairman of the Federal Reserve. He led the Fed to rescue the market by cutting interest rates, gradually lowering the policy interest rate, the federal funds rate, to 1%, and injecting liquidity into the financial system. The Fed then gradually raised interest rates to 5.25%. Yardeni expects central bank policymakers to respond to the current situation, but will not cut interest rates urgently. He said: "This is evolving into a global financial panic, and I think we can expect central banks to respond to it."

Yardeni said the first reaction of central bank policymakers may be to "reduce concerns about the U.S. economy" and resist the possibility that the Fed will start an easing cycle with a 50 basis point rate cut. But he pointed out that after the futures sell-off on Friday and early Monday, the Fed will enter the Mopushu of providing liquidity, and you may mean a 50 basis point rate cut.

The danger of a market sell-off is that it could become self-reinforcing and turn into a credit crunch, according to Yardeni. "It's conceivable that this carry trade unwinding could turn into some kind of financial crisis that could lead to a recession," he said, though he stressed that he personally doesn't predict that this will ultimately happen.

Yardeni commented that although the U.S. July non-farm payrolls report released last Friday was worse than expected, "the labor market is still in good condition." "The U.S. economy is still growing, and I think the service industry economy has good momentum. All in all, I think it (the big drop) will more likely be a technical anomaly of the market rather than something that points to a recession."