Declines in American stock indexes. Is this just a correction?

After new historical highs were set late in the evening, there was strong profit taking on American stock indices. Yesterday's session was one of the worst in the past quarter. However, looking at the behavior of other assets, especially currencies and bonds, there is no reason to panic. Can we then only talk about strong profit taking fueled by speculation about imminent interest rate cuts?

Only profit taking?

Fall on S & P500 and Nasdaq reached 1,5% yesterday. We could observe it quite a long time ago such strong downward sessions. However, looking at the behavior of the currency market, it is difficult to talk about any major panic. EUR/USD fell during yesterday's session, but is still within the range of 1,10. US bond yields are rising marginally today, but yesterday fell deeper below 3,90%. In addition, the probability of an interest rate cut in the US in March remains at 75%. Looking at this state of the market, one can draw the conclusion that it was just profit-taking. So will the end of the year still be positive?

There is more and more talk about tensions between China and the United States. Chinese President Xi Jingping told US President Joe Biden that "sooner or later" the unification of China and Taiwan will occur. It is worth mentioning that there are elections in Taiwan at the beginning of the year, which may lead to increased uncertainty on the market. Moreover, the United States plans to increase tariffs on Chinese cars, which could result in pushback from China.

Will fears about inflation return?

As you can see, important risk factors are emerging on the market, and a return of inflation concerns cannot be ruled out if there is a larger rally on the oil market. For now, there are transport problems in the Suez Canal and a decision OPEC + about cutting production in the first quarter of next year have so far brought mediocre results.

From Poland's perspective, it is worth paying attention to the planned one bigger budget deficit next year. For now, it is not a problem, but with lower economic growth and a better attitude of other countries, it could result in a correction of the Polish zloty. Especially since the hard data are not impressive. Industrial production for November unexpectedly decreased by 0,7% y/y, although a similar increase was expected.

In the morning, the dollar is weak, which is simply a neutralization of part of yesterday's movement. In Poland, in turn, we pay PLN 3,9609 for a dollar, PLN 4,3371 for a euro, PLN 5,0018 for a pound, and PLN 5,8998 for a franc.

Source: Michał Stajniak CFA, XTB