Global Stocks Rebound As Dollar Tumbles, Oil Flash Crashes

December 18, 2018

London (Dec 18) After Monday's furious selloff which saw a relentless barrage of heavy sell programs as one or more hedge funds threw in the towel and liquidated at any price, Tuesday has seen global markets and US equity futures stage a modest rebound while shares in Europe pared a drop following a weak session in Asia after Xi Jinping failed to impress traders with any new stimulus measures during his much anticipated speech. The dollar tumbled, oil flash crashed while Treasuries, gold and the yen advanced as neurotic traders peeked from under their bomb shelters.

Starting the session's main event, Chinese President Xi Jinping failed to offer any fresh commitments to open or stimulate the world’s second-biggest economy in a keynote speech. That compounded the gloom surrounding riskier assets, and sent Chinese equities lower while both the MSCI Asia Pacific and MSCI Emerging Market indexes retreated (for more details see our recap here).

In a speech marking 40 years of market liberalization, Xi called on Tuesday for the unswerving implementation of reforms on Beijing’s terms, saying no one could boss it around. In remarks lasting nearly an hour-and-a-half, Xi called for support for the state economy and development of the private sector, and said China would expand efforts at opening up and ensure the implementation of major reforms. But the one thing that traders were looking for was missing, as Xi offered no new measures, resulting in more early session selling.

Europe's Stoxx 600 Index initially followed Asia lower, but recovered most of its losses as the session progressed. Futures for the S&P 500 Index showed a rebound after the underlying gauge plunged to the lowest in 14 months on Monday.

Even with the reversal in sentiment, the S&P 500 is almost 8% lower in December - heading for its worst month since 2010.

“We’re facing the biggest December fall in U.S. stocks since 1931 and this is striking and worrying at the same time,” said Chris Bailey, European strategist at international financial services firm Raymond James. “We are at a regime shift moment and the debate is how big that regime shift will be.”

The risk-on tone returned after the dollar suddenly tumbled, starting a steep decline shortly after 2am ET, which dragged the Bloomberg Dollar Index lower for a second day before the Fed begins a two-day policy meeting.


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