Trading room – 7 Dec 2018
US stocks closed well off their session lows on Thursday after news broke that the Federal Reserve could tighten monetary policy at a slower pace than previously expected.
The Dow Jones Industrial Average closed 79.40 points lower at 24,947.67 after plunging nearly 800 points, while the S&P 500 closed0.15 percent lower at 2,695.95. The Nasdaq Composite erased its losses, closing 0.4 percent higher at 7,188.26 as Amazon, Netflix and Alphabet all rose more than 1 percent.
The Wall Street Journal reported the US central bank is considering whether to signal a wait-and-see approach to rate hikes at its upcoming meeting this month. The report said Fed officials do not know what their next move on rates will be after December.
Stocks have been falling as continuing fears over U.S.-China trade relations and concern over a possible economic slowdown kept investors on edge with recession fears are also settling into the market.
It was previously reported that on Monday, the yield on the US three-year Treasury note surpassed its five-year counterpart. That bond-market phenomenon, known as a yield-curve inversion, is seen as a recession signal.
But typically, many analysts say that the recession doesn’t come until years after, and many traders won’t see the inversion as official until the two-year yield rises above the 10-year yield.
Still, trade fears were also ratcheted up after news broke on Wednesday that Huawei CFO Meng Wanzhou was arrested by Canadian authorities in Vancouver, where she faces extradition to the U.S.
The arrest — which took place Dec. 1 — decreases the likelihood that a permanent U.S.-China trade deal will be reached. Huawei is one of the largest mobile phone makers in the world.
News of the arrest also contributed to a volatile overnight session in the U.S. stock futures market.
When futures opened overnight, there was an initial plunge lower on heavy volume which caused the exchange to halt trading.
The CME Group said in a statement that “equity index futures and options markets paused intermittently following this evening’s open due to volatility.”
Some of the violent moves in the US have been blamed on several unusual factors including quantitative tightening and the effect of automated trading system.
A news website reported that the unwinding of central banks’ programs a decade after the financial crisis brought economies to the brink is known as quantitative tightening.
Analysts differed on how markets would behave as central banks removed their unprecedented stimulus worldwide.
It was also reported that another factor in the speed of recent declines in the US is the result of several important changes that have happened since the last financial crisis.
Automated trading strategies from quant hedge funds and the massive shift to passive investing have helped to remove liquidity from the system in times of panic.
Index and quant funds are said to make up two-thirds of assets under management globally and the majority of daily trading.
With the violent reversal from the plunge, has the US market bottomed and what is the implication of this move to the Asian and Europe markets? Will there be a pause in the local KLCI downtrend or is it just starting its next leg down?
Markets and stocks are increasingly moving in unison and the lack of big data and global knowledge is likely to hamper your trading strategies.
Should you turn aggressive from defensive?
North America Markets Outlook
Our Quantitative Trading and Analytics Division houses the elite data scientists, programmers and proprietary traders that work the proprietary algorithm trading desk of Malacca Securities.
See what we think as we use quantitative and algorithm methods to unravel the market movements and what we are clearly seeing from recent moves in the market.
Algorithm-traded funds are here to stay and elite traders need to understand how these systems dominate the market now to keep their trading edge up and prevent whipsaws in their trading portfolio.
Join and network with us at our mPower Algorithm and mPower Trading programs and see how your outlook on the market and stock portfolio could be helped and shaped by big data analytics and trading algorithms.