The US and Chinese stock indices growth turned out to be unstable, which we warned about the day before.
USA side
The S&P 500 had lost more than 2% but later reduced the decline to 1%. The US market has undergone a serious sale after news that construction costs fell by 0.6% in December, which contrasts sharply with expectations of a 0.2% increase. This is not first-tier new, so such a strong reaction is explained, in our opinion, by the investors caution at important resistance levels after a long rally. Once again, the mark of 2,800 for the S&P 500 strengthened the demand for safe-heavens.
What do not go up it goes down, often says on markets. Therefore, it would not be surprising if the stock market’s inability to confidently hit important resistance will result in a lengthy correction.
China side
Chinese markets also got their reason for the decline. The authorities have once again lowered economic growth forecasts from 6.5% to 6.0%, which seems to be the reason for the negative mood at the start of trading on Tuesday. As in the case of the United States, the news was the reason for the correction, although the main point is the previous 30% rally.
China’s low growth rates often have a wide impact on the entire region and even on Europe. In addition to the technically overbought conditions for key indices, all this can turn into a launch of a stock markets sale and provoke a demand for defensive assets across the entire spectrum of trading instruments.
Conclusion
In particular, this may spur demand for the dollar, despite Trump’s renewed pressure on the Fed to weaken the dollar. For the euro, this could turn into another test of the 1.1300 mark, while the pound can be sent back closer than 1.30 against the recent highs around 1.3350.
