Worst Day of an Awful Year Leaves No Corner of Market Unscathed

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It was carnage across markets Tuesday as stocks, oil and cryptocurrencies all tumbled, leaving investors with few places to hide. Here are some of the things people are talking about.

Stock Selloff Worsens

U.S. stocks plunged Tuesday, on the worst day of an awful year for markets, and stocks in Asia are set to join the sell-off. Sinking oil prices hit energy companies, tech hardware continued to plunge with Apple Inc. leading the way, and retailers saw little joy from the coming Christmas shopping season. Even Treasuries and gold fell. All major equity benchmarks were down more than 1.5 percent. The S&P 500 Index briefly slid 10 percent below its September record close before clawing back just above that threshold. The Nasdaq Composite Index was almost 14 percent below the closing high it reached in August. And the Dow Jones Industrial Average shed more than 550 points, or 2.2 percent, as angst spread across global markets. Investors pointed to escalating trade tensions, signs of a looming slowdown in retail growth and cracks in the credit market as reasons for the decline. 

Crude Collapse Continues

Oil tumbled below $53 a barrel for the first time in a year amid concern OPEC’s plans to cut production won’t be enough to stem a surge in stockpiles. Futures fell more than 7 percent in New York and London. A government report Wednesday may show U.S. crude inventories rose for a ninth straight week, according to a Bloomberg survey of analysts. U.S. President Donald Trump said that Saudi Arabia has been "responsive" to oil price requests. “The name of the game in the oil market is volatility,” International Energy Agency Executive Director Fatih Birol said at a conference in Oslo. “And with the increasing pressure of geopolitics on oil markets that we are seeing, we believe that we are entering an unprecedented period of uncertainty.” Still, one market legend already sees signs of a recovery. 

No End Seen for Crypto Sell-Off

Turmoil engulfed cryptocurrency markets again on Tuesday, with every major coin extending a rout that’s rocked confidence in the nascent asset class just as U.S. regulators try to close in on alleged fraud. Bitcoin fell as much as 15 percent to $4,051, bringing this week’s decline to more than 25 percent. It traded at almost $20,000 last December. The slide helped fuel a sell-off among rival tokens Ether, Litecoin and XRP, which pared an earlier loss that reached 17 percent. After months of enjoying relative stability, cryptocurrency bulls are left reeling by a sudden market downturn in November and increased regulatory reviews. Digital assets have now lost almost $700 billion of market value since crypto-mania peaked in January, according to Trading on futures markets, where investors can bet against Bitcoin, has soared.

U.S.-Korea Military Ties at Risk?

President Donald Trump is undermining America’s diplomatic and military ties with South Korea -- not just its economic relationship -- by threatening to impose auto tariffs, according to a senior lawmaker in Seoul. Hong Young-pyo, the ruling Democratic Party’s leader on the floor of the National Assembly, is among many South Korean politicians voicing anger and dismay that the Trump administration could impose new tariffs after Korea renegotiated its trade deal with the U.S. earlier this year. “This would bring a dramatic change in the environment for trade, foreign policy and security with American allies, including Japan, the EU and South Korea,” Hong, 61, said in an interview on Nov. 19. “It would certainly be a shock and have a long-term impact on global markets and diplomatic relations with key allies.”

Rethinking BOJ Policy

The university professor at the center of fresh debate on the Bank of Japan’s monetary policy said scrapping negative interest rates now could support economic growth and prices. Since the BOJ’s research institute released Junko Koeda’s study of negative rates earlier this month, speculation has intensified that the central bank is deliberately feeding debate over its policy options in preparation for any future pullback of its stimulus. The surge of interest even prompted an appearance by Governor Haruhiko Kuroda in parliament, where he defended negative rates and insisted the BOJ would continue to keep short-term rates negative to help achieve Japan’s 2 percent inflation goal.

And finally, here's what David's interested in this morning

First off, apologies for the tech spaghetti chart below. Things get busy with this many forward multiples. I wanted to illustrate how the market's done a fantastic job in clustering technology stocks, depending on the nature of their business. If you're into scuba diving, think of this as the tech stocks that live at different depths of the price/earnings spectrum. Pure software names are generally more expensive and higher up. Then as you slowly descend, you encounter your hardware, assemblers and component-makers, which generally have lower margins and pricing power.

And then there's the Xiaomi anomaly. It's not just that it's expensive: it's trading like a pure internet stock despite earnings this week reminding us that hardware still runs through its DNA. Only 9 percent of revenue comes from internet services. To be fair, that number goes up to 45 percent on gross profits. But does that make it less Apple and more Alibaba? Not hating here. I'm just asking: why buy Xiaomi at these levels? Even if you believe in the company's vision of becoming an innovation-driven internet firm, can it actually achieve that end without selling more low-margin hardware? The market's clearly saying it can. So either Xiaomi investors are on the money, or they're in for a market iteration of Guns N' Roses "Welcome to the Jungle".

Source : Bloomberg