Summary:

• Wall Street plummeted on Monday, Dow Jones (US30 on xStation5) had the worst session ever
• Asian stock markets follow their US counterparts, NIKKEI (JAP225) and Hang Seng (CHNComp) fall almost 5%
• AUD lower on a risk-off mode, weaker macroeconomic releases and the RBA meeting

There is no doubt that Monday was the most scariest day on Wall Street in years as the domestic indices went into free fall with Dow Jones (US30) plunging as much as 1600 points at one point, which was the biggest point decline in history when we take into account intraday trading. At the close the US30 dropped 4.6%, the SP500 (US500) tumbled 4.1% while the NASDAQ plunged 3.8%. It’s worth indicating the drop in the US30 was the largest since August 2011 when the European debt crisis took place. At the same time the VIX index, also known as the fear index, made an unbelievable increase yesterday soaring from below 15 to above 29 closing the levels which tended to herald a turnaround in the past. The sell-off was so tremendous that even the White House decided to weigh in saying in an official statement that President Donald Trump is focused on “our long-term economic fundamentals, which remain exceptionally strong”. Emphasis was put on economic growth, low unemployment and increasing wages for workers.

The VIX (an inverted axis) and the Dow Jones at the same chart have to impress everybody. While the fear index reached its highest level since August 2015, the US oldest index plunged below the lowest marked in November 2017. From a technical point of view this level might be quite important for bulls as it coincides with a 38.2% retracement of the really begun following the US presidential election (at around 23200 points). The closest resistance might be found in the vicinity of a 23.6% retracement (ca. 24540 points). Source: xStation5

Asian investors chose to take their cue from the US as they rushed to sell their shares at the break-neck pace as well. As a result, the NIKKEI (JAP225) dived 4.7% whereas the Australian S&P/ASX 200 moved lower by 3.2%. The Hang Seng (CHNComp), when trading is about to end in a while, is tumbling roughly 5%. Notice that the latest rally benefited this index the most as it had gained approximately 20% since the beginning of the new year. This kind of hectic moves on equity markets tend to lift bond prices and the scheme repeated this time around as well. For instance, the US 10Y yield closed on Monday at 2.7% after nearing a 2.9% mark, the German 10Y yield slid about 5bps but more pain is expected to come today, while the Japanese benchmark yield slipped below 0.07% offering relief for the BoJ.

The Australian dollar is moving lower on misses seen in the trade and retail sales data. Source: Macrobond, XTB Research

Finally, let’s take a closer look at the currency market, which however remained quite calm compared to what we saw on stocks worldwide. The greenback regained a bit of its lost mojo with the EURUSD falling noticeably below a 1.24 handle. On the other side, there are the Norwegian krone and the Australian dollar. The former is dropping due to falling oil prices (around 1% at the time of writing), the latter got a blow from the domestic data and an overall risk-off mode. First and foremost, retail sales came in at -0.5% mom missing the consensus at -0.2% mom while the trade data showed a huge deficit at 1358 million AUD whereas the street’s call had suggested a 200 million AUD surplus.

At last, the RBA did not decide to add more hawkish remarks to its statement disappointing some AUD traders. The communique stressed the AUD remains within the range it has been over the past two years on a trade-weighted basis and reiterated that the rising AUD would result in slower economic growth and inflation. The central bank still expects CPI will be able to strike the 2% target later this year but not in a durable manner as price growth is forecast likely yo remain low for some time (the same references as previously).

The AUDUSD has already broken through a local support and if the move is sustained, it could give a rise to an extended pullback. Notice that the move is led both by stronger demand on the greenback and weakness in the Australian dollar following the lacklustre RBA statement and the disappointing macroeconomic prints. Source: xStation5