(05 SEPTEMBER 2018)DAILY MARKET BRIEF 1:EM not out the wood yet: will it spread?

Emerging market currencies and world equities suffered another sell-off yesterday as investors remained worried that the crisis in Turkey and Argentina could spread to other vulnerable emerging market economies. The atmosphere is still very gloomy this morning as European equities slid further, following in Asian equities’ footsteps. The EuroSTOXX 50 fell 0.85%, the DAX gave up 0.65%, while the SMI slid 0.45%. In the FX market, the deterioration in risk sentiment gives leg to the US dollar rally, which started last Friday, while safe haven currencies hold ground as investors take shelter.

Most investors believed the uncertainty that prevailed during the summer months would disappear when traders would come back from vacations. Unfortunately, it looks like it is here to last. We have the feeling it is now legitimate to wonder whether this is just a temporary situation or could potentially develop into a crisis. The market’s wait-and-see mind-set over the last few months has demonstrated that investors couldn’t find any reason to push stocks higher and that we could be ahead of difficult times. After all, a crisis usually start at the fringe before moving to the core.

By Arnaud Masset