What just happened?
First a quick recap:
- The yen jumped 5-8% in minutes across the board, with commodity currencies particularly hard hit. As of writing, AUD/JPY remains down 5%
- Oil is down 25% after OPEC+ dissolved and Saudi Arabia launched a price war
- US 30-year yields are down 33 basis points to 0.96%, a record low
- US equity futures have been halted after hitting the after-hours limit of -5% and most markets that are open are down 4-9%
The Saudi price war was a flash point for today's action but it's really all about coronavirus. The news on the weekend worsened with too many cases and outbreaks to count.
The conditions for a panic were evident the moment markets opened and I warned about the storm. When markets in Tokyo opened for the week, it hit. Japanese market participants invest abroad massively but when uncertainty hits, they bring their money home. It's a classic knee-jerk trade that everyone in FX knows. No one wants to be the last one to the exit and now the building is on fire and it's a stampede.
But what really caused the panic right now?
It's the virus. Traders, investors and other market participants are assessing the situation and there is no faith in leadership or a solution. As the market looks out a week, a month or two months there is no real scope for any kind of good news. This is going to get worse every day; day after day. It's going to be drip torture for anyone who dare owns risk assets and that kind of thing breaks people. So you either get out now or you endure the pain. Few can endure the pain.
The absolute apex of the trade right now appears to be Australian stocks. The benchmark S&P/ASX 200 is down 8.6% today (daily chart below). Price in yen, it's down 13.5%!
