Did traders get an extra espresso shot or what? Price action was extra jumpy in the latest U.S. trading session, spurring a flight to safety that boosted the lower-yielding yen and franc.
- U.S. final Markit services PMI unchanged at 53.3 in Jan
- U.S. ISM non-manufacturing PMI up from 55.9 to 59.9 vs. 56.5 forecast
- New Fed Chairman Powell sworn in
- ECB head Draghi: More confident on inflation but can’t declare victory yet
- Draghi: Monetary policy will evolve in a time-consistent, data-dependent manner
- Draghi: Recent FX volatility poses headwinds
- U.K. Telegraph: Leaked Whitehall analysis shows 37 rules during Brexit transition
- VIX jumped to highest level since June 2016
ECB head Draghi’s testimony
Euro traders are still hungry for more clues on what the next ECB moves might be, so Governor Draghi’s speech at the central bank’s Annual Report for 2016 before the European Parliament garnered a lot of attention.
As in his previous testimonies, Draghi acknowledged that the economic expansion has been broad-based and that the region has been showing “stronger growth rates than previously expected and significantly above potential.”
Draghi also noted that labor conditions have been improving, with employment at its highest level since the shared currency has been introduced. In turn, he mentioned that this would translate to stronger consumption and business investment.
Of course he also took some time to pat the ECB on the back in saying that the “positive developments have been fostered and reinforced by the pass-through of the ECB’s monetary policy measures.”
But when it came to inflation, he cautioned that they cannot yet declare victory on this front. This also gave him an opportunity to take a stab at euro strength, saying:
“Also, new headwinds have arisen from the recent volatility in the exchange rate, whose implications for the medium-term outlook for price stability require close monitoring.”
Nonetheless, Draghi concluded that monetary policy will continue to evolve in a time-based and data-dependent manner, which warrants patience in waiting for underlying inflation measures to pick up.
Equities plummet as VIX jumps
Wall Street ended the day deep in the red in what seemed to be a long-overdue pullback for equities. The S&P 500 index erased all of its gains so far this year as it joined the Dow on their steepest tumble since August 2011.
- Dow 30 index fell 1,175.21 points to 24,345.75 (-4.60%)
- S&P 500 index is down 113.19 points to 2,648.94 (-4.10%)
- Nasdaq is down 273.42 points to 6,967.53 (-3.78%)
Sharp single-day declines like these were last seen when the U.S. government suffered a debt downgrade and the euro zone debt crisis was still in play. The White House tried to reassure market watchers in saying that the Donald is focused on “exceptionally strong” fundamentals.
Commodities were also part of the bloodbath as the VIX, which is typically considered a barometer for market uncertainty, jumped to 37.32 (+115.60%). Gold, on the other hand, flashed its safe-haven shine but the gains were relatively meager.
- WTI crude oil slipped to $63.63 per barrel (-2.70%)
- Gold rose $5.88 to $1,339.06 per troy ounce (+0.44%)
Bond yields also slumped on the flight to safety.
- U.S. 5-year yield slipped 14.8 basis points to 2.440%
- U.S. 10-year yield fell 13.1 basis points to 2.709%
- U.S. 30-year yields dropped 8.1 basis points to 3.006%
Cryptocurrencies like bitcoin, which used to take advantage of panic-filled days like these, were also down in the dumps.
Major Market Mover(s):
CHF & JPY
Risk-off vibes were already present during the earlier session, but it wasn’t until the latter part of the New York market hours that market fear kicked into high gear.USD/JPY fell from a high of 110.26 to a low of 108.98, EUR/JPY slipped to the 135.00 levels from a session open of 137.02, and GBP/JPY crashed to a low of 151.95.
USD/CHF is down from .9371 to a low of .9296, EUR/CHF bounced to 1.1640 then fell back to 1.1509, GBP/CHF is down to 1.3038, and AUD/CHF tumbled to a low of .7329.
Watch Out For:
- 12:30 am GMT: Australian retail sales m/m (-0.2% expected, +1.3% previous)
- 12:30 am GMT: Australian trade balance (0.25B AUD expected, 0.04B AUD previous)
- 3:30 am GMT: RBA interest rate decision (no change to 1.50% eyed)