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The spotlight shifted back to Wall Street as traders saw a lot of red once again. Many factors are being blamed for the sharp selloff, including fears about another U.S. government shutdown, the short volatility trade, and global tightening expectations.

Data was light during the New York session so risk sentiment took the forex wheel, but the dollar barely took advantage of safe-haven flows as the franc came back in the lead.

  • Canadian housing starts dipped from 218K to 216K vs. 211K forecast
  • Canada’s new house price index stayed flat in Dec. vs. projected 0.1% uptick
  • U.S. initial jobless claims at 221K vs. 232K forecast, 230K previous
  • Dow plunged by more than 1,000 points again, S&P and Nasdaq down nearly 4%

Major Events/Reports

Another stock market selloff

The bloodbath ain’t over! After a brief rebound in the previous U.S. session, equities were in selloff mode once more and many are pointing the finger at the short volatility trade.

  • Dow 30 index is down 1,032.89 points to 23,860.46 (-4.15%)
  • S&P 500 index is down 100.66 points to 2,581.00 (-3.75%)
  • Nasdaq is down 274.82 points to 6,777.16 (-3.90%)

It didn’t help that the U.S. government seems to be on the brink of yet another shutdown as Congress can’t seem to hammer out a budget deal in time. To top it off, persistent concerns about global tightening prospects in a low inflation environment also kept traders on edge and a tad jumpy in hitting the sell button.

Commodities also tumbled as risk-off flows came back in full swing, but gold managed to hold steady.

  • Gold unchanged at $1,318.55 per troy ounce
  • WTI crude oil fell to $60.46 per barrel (-2.15%)
  • Brent crude oil dipped to $62.47 per barrel (-1.18%)

Remarks from Fed officials

Another set of U.S. central bankers shared their thoughts on financial markets, the economy, and monetary policy. Although their remarks barely made waves in the market as the focus was fixed on the stock selloff, it’s still important to note where these policymakers stand.

For instance, perma-dove Minneapolis Fed head Kashkari cautioned that it’s too soon to say if the tax cuts can have a material impact on wages, hiring, and growth. He reiterated that the U.S. is a long way from seeing wages and overall inflation rising, adding that they shouldn’t cool the economy down before this happens.

He also took a jab at cryptocurrencies, saying that he can’t imagine how bitcoin could compete with the U.S. dollar as a currency. “If you live in any modern advanced economy I would stick with the dollar I would stick with the yen and leave bitcoin for the, you know, toy collectors,” he mentioned.

Meanwhile, Philly Fed head Harker conceded that inflation dynamics are not very clear right now but that it appears dependent on the dollar’s moves. As with Kashkari, he also expressed concern about U.S. debt levels and warned that the potential impact of tax reform is also unclear.

Major Market Mover(s):

GBP

The pound returned its recent gains and then some as profit-taking was swift after the BOE Super Thursday events.

GBP/USD hit a high of 1.4067 then fell to a low of 1.3879 in a couple of hours, GBP/JPY dropped from 154.03 to the 151.50 area, EUR/GBP bounced from .8733 to .8820, and GBP/NZD slid back to the 1.9300 levels.

CHF

The franc was stronger across the board as risk-off flows and hesitation to buy the dollar played in its advantage.

USD/CHF was nearly nonstop in its slide from .9464 to a low of .9354, EUR/CHF is down to the 1.1500 handle, AUD/CHF sold off from .7384 to a low of .7282, and CAD/CHF is down to .7435.

JPY

The yen was also a strong contender as it also flexed its safe-haven muscles and left the dollar eating dust.

USD/JPY is down to the 108.75 support again, EUR/JPY fell from a high of 134.63 to a low of 132.93, AUD/JPY is down to 84.65, and CAD/JPY resumed its drop to 86.30.

Watch Out For:

  • 12:30 am GMT: RBA monetary policy statement
  • 12:30 am GMT: Australian home loans m/m (-1.1% decline expected)
  • 1:30 am GMT: Chinese CPI y/y (fall from 1.8% to 1.5% expected)
  • 1:30 am GMT: Chinese PPI y/y (drop from 4.9% to 4.4% expected)
  • 4:30 am GMT: Japanese tertiary industry activity index (0.2% consensus)