Volatility, volatility, volatility.
Overnight, in extreme markets, the NZD was the worst performer by some margin. It currently trades at 0.6520, while the ‘safe haven’ JPY has been the major outperformer.
It was another hair-raising night across most markets. Further 8%+ falls on Chinese equity indices were followed by a 5.3% fall on the Euro Stoxx 50. The S&P500 is clawing its way higher, but remains down 2.4%, while the WTI oil price has plunged another 4%. Moves were equally as violent in interest rate markets.
Our global risk appetite index (0-100%) has fallen still further, toward 18%, its lowest level since early 2009.
There were no data releases overnight to speak of. Rather fears appear wide-ranging.
The state of China and emerging markets is a dominant feature. The market also frets whether plunging commodity prices are representative of downward momentum in global growth more broadly. Imminent US Fed hikes has almost slipped down the agenda of fears, as the market is using current market ructions as an excuse to ratchet down expectations for Fed rate hikes.
In this backdrop the USD weakened further, while the ‘safe haven’ JPY was a key beneficiary. The USD/JPY trades around 2.5% lower this morning, at 119.00. Intra-night it had plunged toward 116.00 in a bout of extreme volatility that impacted most currencies. In the early hours of this morning, just prior to the opening of the S&P500, there was a complete melt-down of ‘commodity-linked’ currencies. The NZD, in particular, collapsed against the JPY and against all its major peers.
At the same time, the NZD/USD made a dramatic plunge from around 0.6560 to 0.6200 in a matter of moments. It has subsequently recovered some composure and returned to trade at 0.6520 currently. Equally, the AUD/USD plunged from 0.7230 toward 0.7050 before recovering. The moves highlight that as long as the spotlight remains on China, these currencies are likely to remain volatile and to be sold as liquid proxies during times of pressure.
The NZD sits lower against all of the crosses this morning, after its volatile intra-night moves. The NZD/GBP trades at 0.4140 this morning, having dipped briefly below 0.4000 intra-night. It appears to have broken through support levels of the past few weeks, now trading at levels last seen in Sept 2009.
The focus will remain on Asia today. The market will be looking to see what intervention measures regional authorities may take if markets continue to be disorderly. Tonight, there is a handful of German and US data releases that may get a look in, if markets manage to draw breath.
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Kymberly Martin is on the BNZ Research team. All its research is available here.
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3 Comments
Not sure what you are saying here. China's "normal" growth rate is supposed to be 10% per annum. So a slow down in that to 7% is considered significant. NB The first number is a doubling of China's economy every 7 years the latter every 10 years. The Q is since most of china's economy is exports whos buying? ouch no one. Then consider the lack of demand for Oz's coal and iron if you are not buying raw materials there cannot be an output so how do you get even 7% growth? So for me I consider china a huge con, its more like bridges to no where and/or falsified data and/or a ponzi scheme. Next consider that the 7~10% is what is considered essential to absorb the migrant workers from the countryside coming to cities for work, no work means no money, hunger and considerable social unrest, maybe even riots. So I think there has been a considerable slowdown already and its looking worse, it could get pretty ugly.
Given China probably has a rapidly falling birth rate (has to with one child policy and gender imbalance) then 10% growth once most of the populace has been elevated in terms of living standard is ridiculous. I see their govt is trying to turn them into a nation of consumers in order to keep the growth machine going, but that has its limits as well, especially as the population ages and the need to spend, spend lessens.
The thing China and the rest of the world has to get its head around is prospering without growth. We won't get our heads around it as long as we behave as if our born destiny is to keep giant corporations well fed with money.
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