Market Fluctuation – This Time It Really is Different

Equity markets have rarely been this volatile even though banks keep recommending them. finews.com has a different take.

Banks are making plenty in brokerage fees right now. Their services are in demand given these turbulent markets. Yesterday, Switzerland's largest online bank, Swissquote, said that it was able to carry the momentum it saw in 2021 well into this year. Many asset managers and private banks are probably experiencing the same.

But with all that it is clear the investors and advisors are treading uncharted waters. Trading has become both rife with risk and opportunities in ways that have not been seen in years.

«This time it’s different», is a well-worn saying that usually ends up being wrong . The eight reasons below are why that might not be the case this time:

1. Interest Rates
 
Central banks will not raise interest rates as sharply as thought because of the Ukraine war, the current market correction and worsening economic data. We are already seeing that happen. In the U.S., the Federal Reserve only raised rates by 25 basis points despite the high rate of domestic inflation. Their policy is likely to pave the way for other central banks to follow.

The Fed's dotplot chart shows another six interest rate increases on the way in the U.S. But the market has already priced them in. They are probably going to choose their words wisely in public in the next few weeks given they don't want to stop economic growth in its tracks by hiking rates too aggressively.

2. Oil
 
Oil prices are driving inflation higher but they are also having an impact on the real economy, raising the price for energy and commodities. Oil is essentially the lubricant for the global economy. According to many experts, prices are expected to remain high for a prolonged period. On Wednesday, they rose 7 percent after the International Energy Agency IEA warned the that market could lose about 3 million barrels a day from Russia.
 
The high price for oil is dampening demand and growth. The Russian shock could lead to shortages. According to the IEA, both supply and demand are suffering. But the situation on the supply side is worse and it expects a tense market over the next two quarters.

3. Wall Street Not Setting the Pace

The economic problems are hitting Europe particularly hard. Russian sanctions will hit European companies much harder than American ones. And the Russia and Ukrainian markets can't be completely ignored even if they are not large markets in and of themselves.

According to a survey by the Association of German Chambers of Commerce and Industry (DIHK), about 60 percent of companies are experiencing supply chain and logistics issues as a result of the war. The Kiel Institute for the World Economy cut its growth forecast for Germany almost in half to 2.1 percent from 4 percent. To compare. In Switzerland, SECO cut its growth forecast to 2.8 percent from 3 percent.

4. Government Intervention in Markets

Rarely have governments intervened this much in equity markets. Russia's central bank forbid foreign investors from selling Russian shares as one of the first steps it took in reaction to sanctions. That has essentially stopped trading. The move hit those in the financial sector with large exposures to Russia particularly hard. Blackrock had to make $17 billion in write-downs on Russian securities holdings.

The roller coaster ride in the Chinese markets is breathtaking. On Tuesday, the Hang Seng fell more than it had since 2008 while they rose more than they had in 14 years the day after. This, after the Chinese government announced that it was stepping to support the markets.

5. ETFs Accentuate Herd Instinct