The new contraction overnight occurred amid concern that the US Federal Reserve will raise its benchmark interest rate faster than expected due to rising US inflation. Considering stocks have reached record high positions in many parts of the world (due to accommodative monetary policies from key central banks), many investors see it as a good point to engage in profit taking and move funds to the bond market.

European stocks also had a bad day at the office on Thursday (08/02) with benchmark indexes in Germany, France and London falling 2.6 percent, 1.98 percent, and 1.5 percent, respectively. Meanwhile, perceived safe havens - including the Japanese yen and Swiss franc - drew demand amid the turmoil.

News agency Bloomberg reported that Thursday's sell-off wiped USD $120 billion of the collective wealth of the world's 500 richest people.

The only positive sign for now is that US futures are in the green zone on Friday morning.

Asian stocks are following the examples set by Wall Street and European markets overnight. On early Friday morning (09/02) benchmark indexes in Japan, China, Hong Kong, the Philippines, and Taiwan all fell between 2 and 3 percent. Other benchmark indexes kept their losses below 2 percent. The Indonesian market is about to open. It will most likely follow the regional and global trend.

The question now is whether the corrections that occurred this week are part of a "normal correction" that occurs after strong stock market performance (corrections between 5 and 15 percent are not uncommon) or whether it marks the end of accommodative monetary policy-driven stock market strength. Investors could be wary of investing in stocks seeing the rise in long-term US yields as well as a significant surge in stock market volatility. Wall Street began shaking last Friday (02/02) after positive US labor market data sparked a spike in bond yields, while climbing US inflation is feared to trigger new interest rate hikes.

Bahas