Asia opened the week with a cataclysmic shift in markets after Japan’s Nikkei index experienced its largest one-day fall since 1987, falling over 12% on the day.
The move was a continuation of the theme from last week after US payrolls showed much softer jobs numbers and opened the door to a hard landing and possible recession.
Markets were primed for a correction after they had extended their gains over recent months, and it didn’t disappoint.
The S&P 500 tumbled a further 3.0% overnight, now down 8.5% from its peak just a month ago.
The slide was less dramatic across the Atlantic but still significant, where the Eurostoxx 50 dropped 1.5%, taking its cumulative 3-day loss to 6.2%.
Surprisingly, US 2-year treasury yields didn’t join in the turmoil and were only 4 basis points higher to 3.92%, suggesting that this rout is an equity specific correction.
The US dollar has gapped lower over the last two sessions despite its safe-haven appeal, although most of this was JPY related as markets exited long USD/JPY positions on the back of the Nikkei fall.
The Aussie dollar was caught in the crossfire and dropped over 150 points in less than 20 minutes late yesterday as markets got out of cross AUD/JPY trades as well. The AUD/USD fell to an 8-month low at .6350 before rebounding overnight to be back above .65 at levels from yesterday morning.
EUR and CHF benefited from the carnage in Asia as markets moved into safer assets.
Commodity markets were largely unchanged.
All eyes will be on the RBA today at 2.30PM, to see if they will react to the most recent developments in global markets now or wait until their next meeting to see if things calm down.
