While there is no unanimous reason for what sparked yesterday’s market meltdown, many are pointing to last Friday’s worse-than-expected jobs report. It wasn’t the year’s lowest payroll tally (114k gain in July vs. 108k gain in April), but when combined with the downward trend in inflation, it did complete the lowest Core CPI/Payrolls duo in the current rate era, in line with Fed’s dual focus on inflation and labor. Shrinking payrolls gives the Fed an open path to begin cutting its overnight policy rate, and with an added element of urgency given the sharp decline.
The Bank of Japan’s recent rate hike is also a leading candidate for yesterday’s selloff. Some are criticizing the bank’s timing (in hindsight), saying that poor economic data didn’t support the hike to 0.25%, its highest in more than a decade. But whatever the root cause for yesterday’s volatility, markets are back to normal ranges today.
Recap of some of yesterday’s volatility:
- U.S. 10-year yields traded to 3.665%, its lowest since June of last year.
- The probability of a cut at the FOMC’s September policy meeting reached 245%, equivalent to 61.25 basis points.
- The U.S. Dollar Index reached 102.16, a 6-month low.
- Flight to safe-haven JPY (USDJPY was -4.88 JPY at the low, 8-month low) and CHF (USDCHF -1.45% at the low).
- Gold declined as much as 3.24%.
- VIX Index (equity ‘fear’ index) reached 65.73, its highest point since the COVID breakout in March of 2020 (85.47 high).
- Bitcoin was -16.39% intraday, surprising to some that it didn’t perform like a safe haven as some have asserted.
- Japan’s Nikkei Index declined 13.24%, its biggest one-day decline since 1987.
- USDMXN gained as much as 4.60% intraday, reaching 20.043.
The dollar is mixed today against the G10, its primary gain +0.69% vs. GBP.
This week’s economic is relatively quiet. Today’s Trade Balance (-73.1b vs. -72.5b estimate), tomorrow’s Mortgage Applications, and Thursday’s Weekly Initial Jobless Claims are the key releases.
