Money Here's a simple explanation for why markets are freaking out

04:20  05 february  2018
04:20  05 february  2018 Source:   Business Insider Australia

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The simplest explanation for the sell-off in US stocks on Friday — the Dow fell 2.5%, or 666 points, its biggest points fall since 2008 — is that investors are worried the inflation genie might be out of the bottle. The searing run of US job creation finally has America’ s labour market at a point where wages

× Here ' s a simple explanation for what just happened to the stock market . China's tinkering with markets freaked investors out , with the read-through being that if the government has to take unprecedented Then why is our market going down so hard? There's no easy answer here !

The simplest explanation for the sell-off in US stocks on Friday - the Dow fell 2.5%, or 666 points, its biggest points fall since 2008 - is that investors are worried the inflation genie might be out of the bottle.

The searing run of US job creation finally has America's labour market at a point where wages are starting to rise more rapidly than anticipated.

After the release of the US monthly jobs data on Friday, which showed wages growth rising at 2.9%, Deutsche Bank's chief international economist Torsten Slok released a presentation on Friday which was ominously titled: "US employment outlook: Labour market beginning to overheat."

Aussie dollar stumbles on weak metal markets

  Aussie dollar stumbles on weak metal markets The Australian dollar has fallen against the US dollar to 80.35 US cents after a flat night for metals markets.At 0635 AEDT on Friday, the local currency was worth 80.35 US cents, down from 80.43 cents on Thursday.

Then why is our market going down so hard? There’ s no easy answer here ! If China is going soft, then the concern is that emerging markets are also going soft, which could limit earnings If you’re the kind of person that likes to worry, then go nuts and freak out . (And read Henry Blodget’ s latest post!)

Repeated efforts by the Chinese government to stem the losses have failed, and Citi calculates that just one out of four leveraged investors has been driven out of the market . Plenty more will be flushed out . The panic is now starting to spread to other markets that haven't been hit by the same problem.

Here's the first chart from that deck, showing wages are finally showing a consistent surge in growth.

a close up of a map© Business Insider Australia

The jobs data triggered a sell-off in bonds. In Australia, coverage of financial markets tends to skip over developments in fixed income, but seasoned investors and traders know that trouble always starts in bonds.

Here's a chart of the global benchmark US 10-year Treasury yield, going back all the way to 1990. It shows the price of bonds - which falls as yields rise - has been getting thumped, decisively breaking a decades-long trend.

a screenshot of a map© Business Insider Australia

Chris Weston, IG Markets chief markets strategist, wrote in a weekend note: "It certainly feels as though something changed last week, something fairly significant and where for so long markets lacked any sign of a pulse, the idea that we are now facing a period of elevated implied volatility has knocked us all a bit for six."

The concern among investors is that the US Federal Reserve will need to increase rates a little more quickly than anticipated, raising borrowing costs which could slow economic and earnings growth.

Australia is not without exposure. A world of rising borrowing costs could also have an impact here as the price of funding for banks increases and the cost being passed on to households and businesses.

"So a new chapter is upon us and the markets are already speaking out," Weston added, "and it feels that given the moves in the long-end of the US bond market, as well many other developed markets... that world that has finally bought into the notion that inflation is coming."

We need to talk about Neighbours’ massive episode last night .
We break down the five biggest moments from the movie-length episode of Neighbours.Of all the car parks in all the world and Susan (Jackie Woodburne) hits Izzy (Natalie Bassingthwaighte) with her car. What are the chances?! But the accident is only the start of the surprises Izzy has in store. The biggest one in last night's episode was that Izzy has inherited 41 million pounds from her late husband (seriously how does she do it?). And she says it's going to get her everything she wants.

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