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economic observer reporter ouyang xiaohong the market's restlessness and unrest quickly ushered in the prelude to a change in the landscape.

on september 3, the global market fluctuated violently, with the vix panic index soaring 33.25%. the three major us stock indexes plummeted collectively, with the dow jones industrial average falling 626.15 points, a drop of 1.51%; the s&p 500 fell 2.12%; and the nasdaq index, which is dominated by technology stocks, plummeted 3.26%. this plunge not only became the "black start" of the us stock market in september, but also quickly spread the risk aversion sentiment in the global financial market.

on september 4, asia-pacific stock markets were almost in mourning: the nikkei index fell more than 4%, the south korean composite index fell more than 3%, the hang seng index fell more than 1%, and the shanghai composite index fell 0.67%.

the current global market is fluctuating violently like a pendulum, approaching a critical point at a certain historical moment. any external shock may trigger larger-scale fluctuations or trend reversals.

the storm gathers again

behind the sharp market fluctuations is the extreme sensitivity and anxiety of investors about future policies and economic trends. september started badly, with the u.s. stock market plummeting due to weak manufacturing data.

data released by the institute for supply management (ism) showed that the ism manufacturing pmi (purchasing managers index) in august was 47.2, lower than the expected 47.5, and continued to be in the contraction range. this is the fifth consecutive month that the index has been below the boom-bust line of 50. what is particularly worrying is that the new order index fell to 44.6, the lowest since may 2023, showing a significant weakening of us manufacturing demand.

in addition, the final value of the s&p global manufacturing pmi in august was also lower than expected and the previous value, at only 47.9, which may further prove that manufacturing activities are in trouble. these weak data have rekindled market concerns about a us recession.

“august’s rise was driven in part by an inventory build and faster supplier deliveries, suggesting that goods inflation could fall further,” stuart paul of bloomberg economics said in a note to subscribers. “the unexpected build in inventories sets the stage for a slowdown in production in the coming months.”

behind the sharp drop in us stocks, technology stocks were the hardest hit. for example, nvidia's stock price plummeted 9.53% on september 3, and its market value evaporated by about $280 billion, becoming the stock with the largest market value loss in a single day in the history of the us stock market. nvidia's plunge not only dragged down the chip sector, but also severely hit the overall market sentiment.

the trigger for nvidia's stock price plunge came from the news of the us department of justice's antitrust investigation against nvidia. the us department of justice issued a subpoena to nvidia to investigate its monopoly in the ai ​​chip market and whether there are any unfair competition methods against customers.

not only nvidia, the stock prices of other technology giants such as amd, qualcomm, broadcom and other companies followed the decline, and the semiconductor sector was collectively under pressure, which may indicate the market's re-examination of the high valuations of technology stocks and a re-assessment of risks.

looking back at the beginning of august, the global stock market and foreign exchange market also experienced a round of violent fluctuations. at that time, investors' panic was triggered by the bank of japan's unexpected policy adjustment. the bank of japan's unexpected interest rate hike and expansion of its control over the long-term yield curve directly led to a major reversal of global carry trades, with a large amount of funds withdrawing from high-risk assets and pouring into safe-haven assets such as us bonds and gold.

at the same time, the market's expectations for the fed's policy path fluctuated, leading to sharp fluctuations in the stock and bond markets. the "seesaw effect" between risky assets and safe-haven assets was obvious, and funds were quickly repositioned, further exacerbating market anxiety.

so, what is the probability of a "soft landing" of the us economy, which is constraining global market sentiment? gao ming, an analyst at yongxing securities, believes that there is still uncertainty as to whether the us economy can achieve a "soft landing". on the one hand, the us unemployment rate rose to 4.3% in july, triggering the "sam rule", indicating that the risk of economic recession has increased; on the other hand, federal reserve chairman powell believed at the "jackson hole conference" that the economy is expected to achieve the 2% inflation target while maintaining strong employment, but he also emphasized that the timing of the interest rate cut will depend on future data and risk changes. therefore, the probability of a "soft landing" needs to be continuously tracked and verified by data changes.

from the end of july to the end of august, the nominal and real interest rates in the united states fell, the us dollar index fell, and the us stock and gold prices rebounded, reflecting the market's rising expectations for interest rate cuts. among them, the us 10-year treasury yield fell from 4.17% to 3.91%, the us dollar index fell from 104.57 to 101.73, the gold price rose from us$2,391/ounce to us$2,513/ounce, and us and japanese stocks also rebounded.

gao ming believes that judging a "soft landing" requires dynamic tracking of data changes, and the probability of realization is still uncertain. in addition to changes in asset prices, it is also necessary to comprehensively observe macroeconomic indicators such as the us economy, employment, and inflation. in this way, the "first shot" of the us heavy data (ism manufacturing) this week (september 2 to september 6) has "severely hit" the global market; and the upcoming us employment data may once again "stimulate" the fragile and sensitive nerves of the market.

why are huge fluctuations so frequent?

perhaps "big ups and downs, unrest, sensitivity and capriciousness" is the portrayal of the current market sentiment. such market performance usually indicates great uncertainty and potential historic moments.

to some extent, the sharp fluctuations in global markets may be paving the way for major events. for example, the fed's interest rate cut in september. the market will pay close attention to whether the fed will take easing actions against the backdrop of weak economic data and reduced inflationary pressure.

another example is the us election in november. this will be the focus of global markets, as the election results may bring about a huge policy shift, affecting key areas such as global trade, tax policies, and technology regulation.

another example is the policy shift of the bank of japan. as the bank of japan's interest rate hike stance becomes clearer, the market is closely watching how this will affect the global interest rate environment, especially the performance of the yen and japanese assets.

on september 3, bank of japan governor kazuo ueda reiterated in a document submitted to the government's economic and fiscal policy group that the bank of japan will continue to maintain its interest rate hike stance if future economic and price data meet expectations. ueda's statement once again emphasized the bank of japan's monetary policy tightening trend. after the news came out, the yen rose against the us dollar in the short term, reaching 146.13 during the session on september 4.

from the perspective of market performance, the nikkei index fell sharply, reflecting market concerns that the bank of japan's policy tightening may have a negative impact on economic growth. at the same time, the yen strengthened against the us dollar, reflecting the market's expectations of future interest rate hikes by the bank of japan. however, due to the increased risk aversion in the global market, the overall market sentiment remains cautious.

behind the recent frequent fluctuations in global markets, in addition to poor economic data and policy uncertainty, market analysts believe there are deeper reasons:

first, concerns about economic slowdown are escalating. economic data from major economies around the world have been weak one after another, and manufacturing data from the united states, europe and china have all shown that economic activity continues to slow. this has reduced investors' confidence in the global economic outlook and increased risk aversion.

secondly, the policy path is full of uncertainty. major central banks around the world face challenges in balancing inflation and economic growth. differences in monetary policy among the federal reserve, the european central bank, and the bank of japan and the market's repeated expectations of interest rate cuts and hikes have further exacerbated market volatility.

the second is the reassessment of the risk of high valuations. especially in the technology sector, as us stocks have risen sharply in the past few years, investors' tolerance for high valuations is declining. every data that falls short of expectations and every regulatory disturbance may become the fuse for a major adjustment.

finally, there is the uncertainty of geopolitics and global trade. from the conflict between russia and ukraine to the tension between china and the united states, geopolitical risks continue to put pressure on the market and increase the market's uncertainty about the future.

the “steadiness” of major asset classes

the vix panic index is usually regarded as a "fear indicator" that measures market volatility expectations. the 33.25% surge in the index reflects the sharp rise in risk aversion in the market, with funds flowing into safe-haven assets such as government bonds and gold at an accelerated pace.

on september 3, in addition to the general decline in global stock markets, the cryptocurrency market was also under pressure. major cryptocurrencies such as bitcoin (btc) and ethereum (eth) also saw large declines, with bitcoin falling 4.49% and ethereum falling 6.56% in 24 hours. this shows that the crypto market has not escaped the general pressure on global risk assets. although cryptocurrencies are sometimes regarded as safe-haven assets, they are often more vulnerable to liquidity squeezes and risk aversion during periods of volatile market conditions.

at this time, the attractiveness of safe-haven assets such as gold and government bonds has once again become prominent. goldman sachs believes that gold will continue to perform well in the future risk-averse environment.

goldman sachs analysts led by samantha dart noted: "in the current cyclically weak economic environment, gold stands out as the commodity we are most optimistic about and confident of rising in the near term."

goldman sachs pointed out that since mid-2022, global central banks have tripled their gold purchases, mainly due to concerns about us financial sanctions and sovereign debt. although it remains unknown whether these concerns will actually occur, they have become a long-term factor driving central banks to increase their gold holdings. this structural demand will continue to support gold prices, especially against the backdrop of increasing global economic uncertainty, as gold's appeal as a tool for preserving value and hedging risks has further increased.

goldman sachs believes that the fed's future interest rate cuts will guide western capital back to the gold market, a trend that has not been fully demonstrated when gold prices soared in the past two years. rate cuts usually lower real interest rates and the value of the us dollar, thereby increasing the relative attractiveness of interest-free assets such as gold. as the fed's monetary policy gradually turns to easing, gold is expected to become one of the main beneficiaries of capital inflows.

it is worth noting that, against the backdrop of rising risk aversion in the market, the yield on the 10-year u.s. treasury bond hit 3.835% during intraday trading on september 4, up 0.05% from the previous trading day. despite the slight increase, the overall volatility was small. this situation shows that investors' demand for treasury bonds remains strong, as the attractiveness of treasury bonds as a safe-haven asset has increased against the backdrop of weak economic data and fragile market sentiment.

some market analysts believe that the slight increase in the u.s. 10-year treasury yield is more due to the market's uncertainty about the federal reserve's future policies, which has caused funds to fine-tune between risk aversion and returns, rather than investors abandoning bonds.

so how should investors deal with the current market turmoil? this market insider suggested that first of all, they should pay attention to the allocation of safe-haven assets. against the backdrop of rising market panic, safe-haven assets such as gold and government bonds have performed relatively steadily. investors can appropriately increase their allocation to these assets to hedge against market downside risks.

the second is to pay attention to macro data and policy trends. investors should pay close attention to key events such as the upcoming us employment data and the federal reserve's interest rate decision, which may become the decisive factor in the short-term market trend.

finally, it is important to maintain flexibility in asset allocation. in a market environment with extremely high uncertainty, it is particularly important to maintain the flexibility of the investment portfolio and respond to market fluctuations from a long-term perspective.

at present, the global financial market is experiencing a highly sensitive and unstable period. this "ups and downs" market feature may be paving the way for major events in the future. during this period, investors should be more rational and move forward steadily to seek the best asset allocation plan among risks and opportunities.