US stock markets experienced their worst day in nearly eight months as global trade concerns continue to affect investor sentiment. The Nasdaq led the way finishing just over 4% down but the S&P 500 and Dow Jones weren’t too far behind, both printing losses in excess of 3%. Markets have moved to a much stronger ‘risk off’ position in the last couple of trading sessions with haven products gaining well and risk assets taking a strong hit. US yields have continued to trade the topside and their recent strong move has also been said to contribute to last night’s moves in equities as investors shy away from high rate sensitive industries. In the currency world Jpy appreciated strongly and the commodity currencies came off with the Aussie and Kiwi notably looking vulnerable trading once again near recent lows as the Asian session gets started.
Last night’s moves in equities and particularly in the US indices hasn’t come as too much of a shock to most market participants and it seems like yesterday just happened to be the day where a number of factors came together at the same time and led to stronger downside moves. The US-China trade situation is certainly nothing new and although the Chinese stance does seemed to have stepped up slightly in the last week or so, there has been no dramatic change overnight. Also the US yield story has been a factor in the markets for the last few weeks, really since the last Fed meeting and the run up to it, so overall it doesn’t feel like anyone is hitting the panic button just yet, but if we do get a few more sessions like last night then investors may be looking for further downside in the short to medium term and it could be a quick move.
Currencies traders will be focussing on the risk sensitive pairs as we move through the days trading and as mentioned above the Aussie and Kiwi will be in sharp focus as they are sitting at range extremes. Also expect EM currencies to come under scrutiny as any further flights to safety could see further depreciation in that sector. The Yuan will continue to remain in the spotlight in Asia but several other Asian EM’s are trading at sensitive levels including the Php, Inr and Idr and traders will be looking for further downside moves if negative market sentiment prevails throughout the session.
Looking at today’s trading and naturally there will be a large focus on the stock market opens across the Asian sector and futures are pointing to a large downside start to the day. It’s quiet in terms of economic data release so expect sentiment to dictate moves for most of the Asian session. As we move towards the London open we are expected to hear from BOE Governor Carney on couple of occasions at the IMF’s conference in Bali and sterling traders will be watching his comments closely especially in light of recent positive Brexit developments. Later in the day, probably the most important data of the weak is due out of the US in the form of the latest CPI print with market expecting an increase of 0.2% month on month for both the headline and the Core numbers.