‘Every Day You See Red’: Global Markets Enter Panic Mode

“Relentless.”

That’s the word one mainstream financial media outlet used to describe the ongoing rout in global equities, which accelerated Thursday ahead of crucial US producer price data, which suggested pipeline inflation in the world’s largest economy is as unrelenting as the global risk asset selloff.

The scope of the losses across benchmarks is astounding, albeit not by comparison to the turmoil in cryptocurrencies, which are staring into a dark abyss.

Asian tech shares were pummeled Thursday and some observers were keen to note the apparent knock-on effect of the crypto crash. “The carnage seen in the world of cryptocurrencies is certainly not helping overall risk sentiment,” Bloomberg’s Sungwoo Park wrote, from Singapore.

The Hang Seng Tech Index fell a fifth day in six, tumbling nearly 4%. The Taiex had one of its worst sessions of 2022. And the Kospi dropped more than 1.5%.

The figure (above) is not encouraging, and plainly suggests spillover, both from the US tech rout and crypto’s “dust in the wind” moment.

Similarly, European tech shares dove nearly 3% (figure below).

Broadly speaking, European equities aren’t nearly as levered to tech as US benchmarks, but at a time when war worries and stagflation concerns are pervasive, tech drag doesn’t help.

Meanwhile, the MSCI Emerging Markets Index neared a two-year low (figure below), weighed down by the same names that were largely responsible for declines in Asian shares.

TSMC, Alibaba, Tencent and JD.com pulled the widely-tracked gauge of developing stocks to the lowest since June of 2020. EM equities, as a group, are down nearly 20% this year.

Needless to say, the buoyant dollar and expectations of rapid, aggressive Fed tightening aren’t helping matters for EM assets.

Speaking of that, the rupee weakened to a new record low on Thursday (figure below), as inflation concerns predominate.

If the RBI is serious about protecting the currency, interventions will need to be larger and more aggressive. During panics and crises, emerging market sentiment is almost entirely a function of the currency.

Over the past eight months, foreign outflows from Indian equities exceeded $20 billion.

The losses for local shares are piling up, that’s for sure. The Sensex and the Nifty are both down more than 7% in May alone.

Both benchmarks logged losses in seven of this month’s first eight sessions (figure above).

“Sentiment is low, the stock market is low and every day you see red,” one Mumbai-based fixed-income trader told Bloomberg, in a refreshingly candid take.

That assessment could easily apply across the board. Aside from commodities and the dollar, virtually nothing has worked for investors this year.

That should come as no surprise. Fed tightening cycles always end in tears for someone, somewhere. In 2022, everyone is crying.