Equities And Yields Tumble, Yen Higher
ActionForex | Jan 06, 2015 05:04AM ET
US equities tumbled sharply overnight as selloff in energy stocks spread over to other sectors. DJIA dropped -331.34 pts, or -1.86% to close at 17501.65. That compares to the record high of 18103.45 made just two weeks ago. S&P 500 also lost -37.62 pts, or -1.83% to close at 2020.58. Asian markets followed with Nikkei trading down -2.7% and is back below 17000 handle at the time of writing. The steep decline in equities was accompanied by extended selloff in crude oil which breached 50 handle to as ow as 49.68. Another development to note is that global sovereign bonds jumped sharply on a couple of factors including fund flow from stocks, concerns over Greece and expectation for ECB's quantitative easing. In the currency markets, European majors are under broad based pressure while yen is generally higher. Meanwhile, commodity currencies are higher than dollar on profit taking and short positions.
US 30-Year yield tumbled sharply to close at 2.605 and took out the 2.677 spike low decisively. Also, the sustain trading below the medium term falling channel also indicates downside acceleration. Current development suggests that deeper fall would be seen 2012 low of 2.452. Such development could drag down yen crosses, in particular USD/JPY.
Situation in Greece remains a major focus in the markets ahead of the election on January 25. SNB president Thomas Jordan said that Greece exit of eurozone is "not in our base scenario". However, he warned the markets not to underestimate the risks both for eurozone and Greece itself. Meanwhile, Jordan also reiterated that the EUR/CHF floor remains "absolutely central for maintaining the adequate, correct monetary conditions for Switzerland." He noted that Swiss is not in a real deflation but the "risks have increased markedly". And, "an appreciation of the franc would necessarily lead to more negative inflation or even deflation."
Released in Asia, Japan monetary base rose 38.2% YOY in December versus expectation of 34.3% YOY. China HSBC PMI services rose to 53.4 in December. Australia trade deficit narrowed to AUD -0.93b in November versus expectation of AUD -1.59b. Exports dropped -1.3% YOY while imports rose 1.4% YOY. Aussie was lifted by rumors that China is going to accelerate 300 projects as part of a broader CNY 10T plan.
Looking ahead, services data is the main focus today. UK PMI services is expected to drop slightly to 58.5 in December but beware of downside surprise that could drag down sterling. Eurozone will release PMI services final. US will release ISM non-manufacturing and factory orders. Canada will release IPPI and RMPI.
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