Market Volatility In An Uncertain World

Market Volatility In An Uncertain World

Market Volatility In An Uncertain World by Dan Steinbock, Difference Group

Recent market volatility is neither entirely warranted nor unexpected. In China, it reflects a confluence of forces; but in the US and internationally, it is fueled by international worries.

On Monday, January 4, China’s A-shares plunged by about 7%, whereas the renminbi (RMB) weakened to 6.52 relative to US dollar.

The CSI 300 index, which tracks large-cap stocks in Shanghai and Shenzhen, suffered the largest single-day plunge in months. The fall was fueled by soft data (Caixin PMI’s slowdown to 48.2). However, the 0.4 decline was too small for an adequate trigger. Moderate RMB depreciation, with occasional volatility, is only to be expected after recent reforms of the currency peg and the ongoing RMB internationalization. So why did markets react so strongly and will there be more of the same?

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The market reaction was a strong one, but not exactly unexpected, due to the circuit-breaker effect, the expiration of a sales ban, amplified volatility, I