Why the market stopped trading at the start of the trading halt
Analysts at RBC Capital Markets said they believe a market disruption is now expected to hit the stock market around the end of the week, following a series of trading glitches last week.
The market is expected to stop trading by the end, with the largest trading halt for more than a week likely to take place around Wednesday morning, RBC said in a note to clients.
The markets have stopped trading for nearly three months, and the biggest one-day drop for more that a week is less than 0.5 per cent.
It comes as the US stock market was rocked by a massive sell-off, the worst since 2009.
A large share price fall in mid-March was followed by a market-wide rally, which ended on Wednesday.
The rally, however, has been halted after traders saw a surge in the number of trades in which a number of exchanges halted trading, which resulted in a market outage.
The stock market resumed trading on Thursday morning.
The RBC analysts said that a large share drop in mid March is unlikely to trigger a market breakdown, with some markets continuing to trade.
They also pointed to a potential breakdown in the US Federal Reserve’s stimulus policy, with investors expecting a tightening of monetary policy at the next meeting, when it is due to take effect.
“A sell-down on the S&P 500 would likely be accompanied by a sell-in to the US Fed’s $4.5 trillion bond-buying programme, but that would not necessarily mean a collapse in the price of stocks,” they wrote.
The impact of a disruption on the market is uncertain, but analysts expect the market will continue to trade at a level lower than it was in mid May, meaning there is likely to be a temporary spike in trading activity, before it resumes.
“We expect to see a sharp drop in trading from the US dollar and the yen, but this is unlikely as it would be hard for the dollar to fall back to pre-crisis levels,” RBC analyst Paul DeSantis said.
“However, the yen will also continue to weaken as the Fed’s stimulus programme will be tightened.”
He said that if the market stalls for a while, then a slowdown in US interest rates could occur.
“That will also likely lead to a further slowdown in the dollar and a weakening of the dollar as a benchmark.
The Fed’s policies will be much more stringent in the near term,” he said.RBC Capital’s Andrew Lippman said that the market would likely continue to fall as US interest rate hikes become less likely.”
As we’ve seen in the past, the Fed will not be able to hike rates until the economy is stronger than it is now, and that will not happen until the market has been in the toilet for a year,” he told ABC Radio.
“There’s a real risk that the markets will stall and the market itself will continue down.”
The RBS analysts said they expect a sell off in the S+P 500 index.
“The S&p 500 is likely in for a big sell-up, with its shares trading down around 1 per cent in the week to June 26,” RBS said.
The fund also expects the SACO index, which tracks the share market’s performance, to decline.
“While it’s a bit of a wildcard, the SAG index may end up being the next big loser, falling 3.5 points,” they said.
While there has been no sign of a market break, the analysts have highlighted some areas that could cause problems.
“In terms of risk, the largest market disruption for the SCC would likely involve a market drop, as a large decline in demand for shares and an increase in supply would lead to market instability,” they added.RBS analysts have also highlighted the need for more research into the market.
“Some market researchers may be interested in learning more about the underlying technology behind algorithmic trading, particularly how it is structured, which can shed light on the nature of the markets,” they noted.
“This is a good time to begin research into algorithmic markets as the SPC and SACOs are likely to continue to have their share of trading turmoil.”