A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.
A Well-Oiled Slippery Slope
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David Atkinson Foreign Exchange Sales Manager
This was one of those crazy weekends when you just knew that at the market open there would be a rush of chaotic activity, and market action did not disappoint. Oil prices, equities and bond yields absolutely cratered in Asian and overnight trading, setting even new eye-popping numbers to chew on this morning.
The latest impetus came when Saudi Arabia threw a hand grenade into the oil market. After failing to get agreement with Russia and the rest of OPEC on a round of production cuts, the Kingdom proceeded to start a price war with Russia and cut prices by nearly 10%. The action caused a near complete collapse in the energy markets with Brent crude down around $35 after having been at $50 just last Thursday. This cannot hold however. Market participants know this is a way to shake out a lot of market participants, including US shale producers and Russia as well.
Watching financial press this morning is giving me an education in the automatic stabilizers built into the equity markets to slow down and even stop complete crashes in prices. These numbers so far are extreme – Asian equities down 4-5%, European equities down 7%, and the US and Canadian stocks opened down 7% and yes, we have hit our first circuit breaker in US stocks.
US Treasuries? OMG. I never thought I would see this day. US 10-year yields have dropped by 35 basis points to around 0.40%. The 30-year dropped 43 basis points to 0.85%. Yes, the entire yield curve is below 1.00%. Germany’s 5-year bund hit -1.00% for the first time in history. Switzerland’s government bond yields are -1.00% or below out to 10 years, and their 30-year issuance is at -0.75%.
Foreign Exchange markets have finally perked up and joined the volatility party. The Japanese yen is stronger by 7% against the USD, at highs not seen since November 2016. The Swiss franc and euro are up by 4-5%. The Mexican peso is down 11% against the dollar, hitting over 21 pesos per dollar for the first time in history. Now all markets are down though. Gold is at 7-year highs, trading around $1,682 as I write.
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