Financial markets rally on false rumour

Financial Events


S&P500 Apr12.pngLast week saw yet another example of the damage being caused to financial markets by the computerised high-frequency traders (HFTs).

As the chart shows, the S&P 500 jumped 20 points on Thursday (1.5%), whilst the Dow Jones Industrial average jumped over 200 points. The cause was a rumour that China’s GDP would come in at 9% for Q1.

This, of course, was most unlikely. One of China’s top economic officials, Zhang Xiaoqiang, said on 3 April that Q1 GDP had slowed to “around 8.4%”, and premier Wen had announced a 7.5% target for the year. Anyone following China’s economy would have known these facts.

But the computers don’t follow real issues. Nor do they make human-style judgements. They are simply programmed to follow the crowd. So the more people talked about the rumour (and it was on the Wall Street Journal site by 10.51am), the more the computers rushed to buy.

Of course, next morning, the GDP figure was officially announced as being 8.1%. And so the computers then sold off all day. The market ended on Friday less than 2 points higher than its Thursday opening.

This highlights yet again how markets have become diverted from their real purpose of price discovery, into zero-sum trading games.

The chart shows price changes since the IeC Downturn Monitor launch on 29 April, with ICIS pricing comments:
China (red), down 13%. “Players said demand will continue to be weak throughout April and May”
Benzene NWE (green), down 10%. “Buyers and sellers appeared reluctant to move up amid wider economic uncertainty”
HDPE USA export (purple), down 6%. “Traders said they expected to see prices slide in the next few weeks, if ethylene spot prices continue to fall”
Naphtha Europe (brown dash), down 4%. “Petchems continues to show limited interest in naphtha”
Brent crude oil (blue dash), down 3%
S&P 500 Index (pink dot), no change

Interestingly, the S&P 500 has now followed Brent crude oil in retracing its ‘break-out’ from its previous trading range. It is back at the 1370 level, the key ‘technical level’ highlighted last month.


Leaving the Eurozone would be very difficult


Last December, the blog raised the question of how a country like Greece could a...

Learn more

China lending jumps to hit $380bn Q1 target


China’s leaders have a lot to worry about. The purge of Bo Xilai has now b...

Learn more
More posts
China’s property sector is at the epicentre of the crisis

A branch of Centaline Property Agency in Hong Kong © Bloomberg Indebted Chinese property developers...

“They may ring their bells now, before long they will be wringing their hands”

The wisdom of Sir Robert Walpole, the UK’s first premier, seems the only possible response to ...

Will stock markets see a Minsky Moment in 2020?

Few investors now remember the days when price discovery was thought to be the key role of stock mar...

Chart of the Decade – the Fed’s support for the S&P 500 will end with a debt crisis

Each year, there has been only one possible candidate for Chart of the Year.  Last year it was the ...

$50bn hole appears in New York financial markets – Fed is “looking into it”

Most people would quickly notice if $50 went missing from their purse or wallet. They would certainl...

China’s renminbi and the global ring of fire

China’s property bubble puts it at the epicentre of the ring of fire © Reuters  China’s de...

Stock markets risk Wile E. Coyote fall despite Powell’s rush to support the S&P 500

How can companies and investors avoid losing money as the global economy goes into a China-led reces...

Why everyone ignored my warnings ahead of the financial crisis

It’s 10 years since my forecast of a global financial crisis came true, as Lehman Brothers col...


Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more


Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more