‘Big shakeout coming’: shares fall as top hedge fund sounds warning | Business

Published on February 12, 2018

After $4 trn losses last week, Australian shares fall 0.4% on Monday as US investor says markets have become ‘complacent’














The Australian stock market will be the first to test the water when it opens at 10am on Monday.
Photograph: Dan Himbrechts/AAP

Financial markets are braced for more volatility this week amid predictions from the world’s biggest hedge fund that a “big shakeout” is coming.

The Australian stock market was the first to test the water and was down 0.7%, or 41 points to 5,797 points, on Monday morning. Banking, resources and consumer-focused stocks led the market down amid falling prices for oil, gold, iron ore and other key commodities.

Last week saw $4tn wiped off the value of shares around the world and the US market entered into an official correction after falling more than 10% from its record level in January.

Wall Street staged a late rally on Friday as the Dow Jones finished 330 points higher and the closely watched Vix index, or “fear index”, has dropped four points to 29 on Monday from 33 on Friday.


CommSec
(@CommSec)

Best & worst stocks after the first hour of trade on the #ASX 200. Source Bloomberg #ausbiz pic.twitter.com/lQaPktcr6Z


February 12, 2018

But Bob Prince, co-chief investment officer at the $160bn US hedge fund Bridgewater, told the Financial Times on Monday (paywall): “There had been a lot of complacency built up in markets over a long time, so we don’t think this shakeout will be over in a matter of days.

“We’ll probably have a much bigger shakeout coming.”

David Bassanese, the chief economist at BetaShares Capital in Sydney, said in a note on Sunday that despite the big falls last week, the selling could continue.

“History suggests the depth of corrections – assuming the underlying bull market persists – don’t usually get beyond 15%, so there’s certainly some scope for market weakness before a bottom is reached,” he said.

Investors would be jittery about US inflation figures on Wednesday, he said. The market was forecasting a “fairly benign” 1.7% annual prices growth, but anything above that was likely to result in more stock losses.

Tiho Brkan
(@TihoBrkan)

Bloomberg’s world market cap chart has looked rather scary for awhile.

The parabolic rise from 80 to 90 trillion was reversed swiftly and sharply.

What comes next? $SPY $EFA [email protected] pic.twitter.com/Quo2u5uaQe


February 11, 2018

The fear of rising US bond yields and higher inflation thanks to higher wages is what sparked the current wave of selling on 2 February as investors digested the prospect of higher interest rates as a result.

Chris Weston at online trader IG said on Monday: “A massive buildup in market leverage has been partially unwound in the blink of an eye and what started as systematic funds selling out of equity and futures positions, as implied volatility headed higher, has morphed into something far more broad-based incorporating many other market participants.”

Craig James, CommSec’s chief economist in Sydney, said the US rally on Friday gave cause for hope but traders were still likely to face continued volatility.

“We may be a little bit softer at the start of trade on the back of the resources but overall I think it’s going to be a choppy session,” he said. “The volatility is still going to be with us for most of the week.”


Wolf Richter
(@wolfofwolfst)

What Crushed Stocks? Treasury yields don’t matter – until they do. Mortgage rates jumped. https://t.co/xWKDd064n2 pic.twitter.com/xZDHuhoL4y


February 11, 2018

Analysts at JP Morgan said in a note on Saturday they remained “constructive” about world stock markets because sustainable topline growth driven by higher wages would underpin earnings and benefit shares.

The benchmark S&P/ASX200 index ended Friday down 0.9% at 5,838 points leaving it down 4.6% for the week. In the US, the benchmark S&P 500 – a much broader index to the 30-company Dow Jones average – fell 5.2% for the week, its biggest weekly percentage drop since January 2016. The FTSE100 in London ended the week about 5% down.

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