Financial markets: Why do prices behave “wrong”

  • And
  • +A

Lately, ordinary traders and investors it is extremely difficult to analyze the financial markets, because of their atypical behavior. After all, the classic analysis says that when the negative events and news the price of the asset should fall, not rise.
But at the same time somehow a reaction to the failure of a vote for Brexit in the UK was highly unusual – the British pound reacted instead of falling growth in the two – month maximum- 1,3000.
Similarly “strange” looks and the unwillingness of the market to see what is happening in the US – stock indexes confidently grow along with the dollar and S&P since the beginning of the year increased by 6%, while completely ignoring the shutdown, the government shutdown and the risks associated with it.
Let’s try to understand the reasons for such strange behavior of prices, and form conclusions about new patterns of market reactions.
The delay of the publication of economic releases in the States allowed the market to take a pause and focus on dovish comments Powell, after major releases such as retail sales and the trade balance was delayed because of the shutdown.
It should be noted also that usually the shutdown of the US government does not cause long-term damage to the economy, but now comes the fourth week, and the shutdown has never lasted so long. According to preliminary estimates, it could cost the US about 0.5% of GDP this year, as 800 thousand civil servants have not been paid and are forced to cut costs and investments.
Meanwhile, the British pound in their movements also reflects the mood and expectations, rather than concrete facts. So, on Friday GBP/USD fell sharply in anticipation of the publication of the “Plan B”, the Prime Minister may, but yesterday the pound rallied after an overwhelming vote. This behavior of the market reflects investors ‘ expectations of the extension of article 50, and reducing the possibility of “hard” Brexit. Now the uncertainty in the future actions and increase the chances of “hard Brexit” stimulates new sales. If we talk about a possible “Plan B”, may really have no choice but to ask the EU for more time.
Theresa may today must submit to Parliament an updated draft of the transaction, and discussion and voting on the proposals will take place in the house of Commons on January 29. Options of plan B only two: extension of article 50, Brexit or hard. But in the first scenario as a possible second referendum and Brexit, but with a permanent customs Union.
So why the market does not react to negative events properly?
In my opinion, at the moment the complexity of the situation in the world globally (slowdown of China’s economy, uncertainty in matters of trade war, the risks of the debt crisis in the Eurozone, geopolitical risks) lead to the fact that investors simply have to lay in their expectations of the prospects to see the worst case scenario.
It is not necessary to understand what exactly will this scenario be expressed, and, most importantly, in terms of constant stress, the lack of news (or delaying bad news) is good news. The situation is reminiscent of the behavior of the patient, which, in anticipation of uncertain diagnosis, to seek to live a bright life, fearing in which case, just do not catch.
Olga Prokhorova,
“International financial center”