The global financial markets have taken a dramatic turn.
Affected by the sharp decline in the US stock market, risk aversion continued to intensify, leading to a sell-off in global assets. Today, during Asian trading hours, Japanese and South Korean stock markets fell sharply across the board, while the A-share market experienced volatile adjustments, with the Shanghai Composite Index falling by more than 2%. European stock markets also opened collectively lower, with the Euro Stoxx 50, FTSE 100, CAC 40, and DAX 30 all falling by more than 1%. In addition, cryptocurrencies, gold, and crude oil also suffered heavy losses, with Bitcoin briefly falling below $82,000, a drop of over 9% at one point during the day.
Some analysts point out that the continued cooling of expectations for a Federal Reserve rate cut is one of the reasons for the sharp decline in global financial markets. CME's FedWatch tool shows that the probability of a 25 basis point rate cut by the Fed in December has fallen to 35.1%. Global asset management giant Vanguard believes that the massive spending spree on AI infrastructure will drive strong US economic growth, and the Fed will only need to cut rates once or twice more in the future.
Global crash
On November 21, Asia-Pacific markets suffered across-the-board losses. By the close, the MSCI Asia Emerging Markets Index had plummeted 2.78%, the South Korean KOSPI Index had fallen 3.79%, and the Nikkei 225 Index had dropped 2.4%. AI concept stocks and chip stocks led the decline, with Advantest Plunging over 12%, SoftBank Group plummeting nearly 11%, and SK Hynix falling nearly 9%.
The A-share market fluctuated throughout the day, with the Shanghai Composite Index down 2.45%, the Shenzhen Component Index down 3.41%, and the ChiNext Index down 4.02% at the close. The combined turnover of the Shanghai and Shenzhen stock exchanges was 1.97 trillion yuan, an increase of 257.5 billion yuan compared to the previous trading day.
Meanwhile, the cryptocurrency market suffered a sharp decline across the board. As of 4:00 PM Beijing time on the 21st, Bitcoin had fallen by more than 8% to $84,372, while Ethereum had plummeted by more than 9%. Crypto financial services company Matrixport published a market analysis stating that Bitcoin is currently in a state of extreme panic, with market pessimism returning to levels rarely seen in the past decade.
Some analysts say that amid a continued sell-off in cryptocurrencies such as Bitcoin, the market is worried about further large-scale forced liquidations, as retail investors may need to liquidate other assets to meet margin call requirements.
Gold prices also came under pressure and fell. As of 16:00 Beijing time on the 21st, spot gold prices fell 0.4% to $4043.61 per ounce; oil prices fell, with Brent crude falling more than 1% to $62.6; WTI crude fell 1.44% to $58.15.
In terms of news, even with Nvidia... Despite releasing strong earnings reports, the US continued to sell off higher-risk assets, causing all three major US stock indexes to plunge overnight. The Dow Jones Industrial Average closed down 0.84%, the S&P 500 fell 1.56%, and the Nasdaq Composite dropped 2.15%.
Goldman Sachs Top trader Ryan Sharkey said, "The fact that the really good news ( Nvidia's better-than-expected results) didn't translate into a positive outcome is usually a bad sign."
The closely watched U.S. Labor Department report showed that nonfarm payrolls increased by 119,000 in September, far exceeding the previous estimate of 50,000.
Peter Grant, vice president of Zaner Metals, said: "These data confirm the Fed's assessment at its October meeting—the job market is slowing but remaining stable. The likelihood of a rate cut in December is decreasing."
CME's FedWatch tool shows that the probability of a 25 basis point rate cut by the Federal Reserve in December has fallen to 35.1%, while the probability of keeping rates unchanged is 64.9%. Furthermore, the probability of a cumulative 25 basis point rate cut by the Fed by January next year is 51.6%, the probability of keeping rates unchanged is 29%, and the probability of a cumulative 50 basis point rate cut is 19.5%.
As a result, the US dollar strengthened against most major currencies, making dollar-denominated gold more expensive for overseas buyers and further suppressing gold demand.
The most "hawkish" prediction
Some analysts point out that the sharp decline in expectations for a Federal Reserve rate cut is one of the main reasons for the global financial market crash. Vanguard, a global asset management giant, believes that the massive spending spree on AI infrastructure will drive strong US economic growth, and that the Fed's rate cuts will be far less significant than Wall Street's expectations.
Sara Devereux, head of fixed income at Vanguard Group, said in an interview that she expects the Federal Reserve to cut rates only 1-2 more times after two 25-basis-point cuts this fall.
This hawkish forecast contrasts sharply with market bets. Currently, the market consensus is that the Federal Reserve will cut rates three to four times by the end of 2026, but Devereux believes that "the market has overpriced in Fed rate cuts." She predicts that interest rates may reach a neutral level "by the middle of next year."
Vanguard Group has significantly raised its U.S. GDP forecast based on continued growth in spending on AI infrastructure. Devereux stated that the company expects the U.S. economy to grow by 1.9% this year, but accelerate to 2.25% by 2026.
Devereux also warned that corporate bond prices could be impacted in the coming months as the market needs to digest information including that of Amazon. Meta, Alphabet, and Oracle Companies including JPMorgan Chase issued a large amount of bonds. It is estimated that corporate bond issuance will reach $1.8 trillion in 2026.
At the same time, Federal Reserve Governor Lisa Cook also publicly warned of the "potential asset valuation vulnerabilities" in the private lending sector and the risks that its complex relationship with the financial system could pose, raising market concerns.
In a report to clients, Goldman Sachs partner John Flood bluntly stated, "The market is currently scarred." He pointed out that investors have completely entered "profit and loss protection mode," focusing excessively on hedging against the risks of market congestion.
Goldman Sachs' model predicts that CTA funds will be net sellers regardless of market developments in the coming week. Traders are closely watching the key mid-term level of 6457 for the S&P 500; a break below this level could trigger even larger-scale algorithmic selling.
In addition, Goldman Sachs predicts that the US stock market will see the largest November options expiration date in history on Friday, with an estimated $3.1 trillion in notional value of options expiring, including $1.7 trillion in S&P 500 index options and $725 billion in individual stock options.
(Source: Securities Times)
