Is a global recession in the offing? All signs point to one as currencies around the world plummeted to record lows Monday and traders in the $5.3 trillion-a-day foreign-exchange market wonder just how the Chinese financial drama will unfold.
Stock markets followed suit with the S&P 500 falling 3.9% in one day, down 11.3% from its all-time high of 2,134, which it set on May 20.
The U.S. dollar fell as traders abandoned expectations for higher interest rates from the Federal Reserve. USDJPY dropped to 116.16 from 119.56, down 4.3% more than in any single day since the LTCM crisis in 1998.
New Zealand’s kiwi plunged as much as 8.3 percent, the most in 30 years touching a six-year low versus the dollar while the Australian dollar slumped as much as 3.6 percent, the most in five years, trading at its lowest since 2009.
Safe Havens
Investors looked for some safe havens for their money and after taking the fall, several currencies began rallying almost immediately. Canada’s currency touched a new 11-year low before turning around and the euro rallied past $1.17 for the first time since January.
Surprisingly, the yen climbed as much as 4.7 percent, the most since May 2010, to its strongest this year.
Many analysts reject the idea of a global recession and view the market reaction as normal. According to strategists as Goldman Sachs, the threat remains low. They maintain their view “…that a global recession is very unlikely."
BMO Capital's Brian Belski is part of a bullish group that holds of the same viewpoint for stock markets. They believe that big sell-offs, corrections, and even crashes are just part of the long-term bullish story.
According to Belski, "… the recent pullback in US stocks is very normal, healthy, and overdue. Corrections are normal and needed – and the current price weakness is serving an overdone purpose."