From Tuomas Malinen on Geopolitics and the Economy.
Bloodbath in the markets accelerated today. A few examples.
Shanghai, SSE Composite Index.
Nikkei 225.
Dax (morning).
At the time of writing, the U.S. markets were expected to open sharply lower, with, e.g., DJIA futures pointing to a whopping 1400-point drop at the open. At one point overnight, the Shanghai index was down over 12%, which was its largest dive since the height of the Great Financial Crisis in 2008.
On 12 March, we warned the subscribers of GnS Economics Weekly Forecasts that:
We are currently assuming that the market downdraft is/has been a much needed correction driven by fear over tariffs and economic growth, with strong global liquidity injections providing support for markets. In this case, we would see markets bottoming out in April or early May (when liquidity injections are set to increase), unless tariff-wars truly flare up, which is naturally also possible.
There’s also another option. The downdraft can be a sign of a major change in the risk sentiment of investors. Recession, re-accelerating inflation and geopolitical uncertainty may have turned investors towards heightened risk-aversion. This would imply that a process of unwinding of large speculative bets and leverage, including record-breaking margin loans in the U.S., has commenced. This would mean that the U.S. would have entered a bear market. In the worst-case, investors could face a combination of dimming economic outlook, up-ticking inflation, heating tariff-wars (and possibly re-heating of other wars) and draining of global liquidity in April. Needless to say that his combination would be devastating to their trust and thus on the markets.
So, in our consensus (most likely) scenario, the market rout will bottom out in April, while in the worst-case, we are heading to market crash in April.
We are effectively in the worst-case scenario now. What lies ahead?
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