Asia Wrap: My mother told me there would be days like this, although she was not explicitly referring to the markets

FX risk turned lower right out of the gates this morning, and now the Aussie dollar is bearing the burnt and trading -125 pips lower. It is not clear what caused this; there were headlines about North Korea cutting contact with South Korea, but that is hardly a straw that breaks the markets back. 

When “it’s not so clear what caused this” becomes a common term in the market’s lexicon, it is probably a good idea to pare some risk.

But a few poison pills are lining up. 

Equities futures are struggling mightily, are investors starting to think markets look stretched? Perhaps, but I suspect, given the recent price action, no one will want to call the top. Still, when bankrupt companies such as Hertz rally 114%, perhaps caution is warranted.

SX7E, European banks are down 4% today. The sector is being walloped following the ESRB’s ruling late Monday that anyone under its authority – so all financials – should not pay a dividend this year nor buy back stock.

There’s lots of chatter about the FT story ” Hong Kong as we know it is dead,” Hong Kong hedge funds eye exit as national security law looms.
 

With the coronavirus blame game still in full swings and reports of COVOID 19 being a human-made virus doing the rounds again, there are few poison pills in circulation in London today.

And uncertainty ahead of this week’s FOMC meeting is likely to keep bullish ambitions at bay as at the moment; it does not feel like investors need much of an excuse to sit on their hands.

The bid tone to USD seems to be on the back of the sell-off in stocks. Equities have moved a long way, and the E-minis are struggling to break through 3235, which had previously been an area of support on the way up in February.

Technical trading algo funds are driving forces in this market both up and down. And once the momentum starts, its time to get on or off the bus, depending on your predicament.  

My mother always told me there would be days like this, although she was not explicitly referring to the markets.

US stock markets are up almost 45% since the March lows, which is easily the most significant move up in the shortest time ever. Not surprisingly, there will be days like today where investors take a breather, and the market consolidates. In FX, the USD had dropped for nine days straight, which was the longest slide in a decade, to put things in perspective. Again, it is not surprising that there is a day or two of pause. Wednesday’s FOMC decision will determine whether the break extends a little longer or not. If the Fed does not take any further action, risk sentiment might cool for a bit longer. 

Gold is starting to make some headroom above $1700 as risk aversion grips the markets. 

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