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Wednesday, January 20, 2016

Markets In TurmOIL: Futures Plunge, Japan Enters Bear Market, Crude And Commodity Currencies Crash

It all started early last night when the front month oil contract dipped below $28 giving a taste of what was to come. It was all downhill from there.
First Chinese stocks ended the recent ramp higher, with the Shanghai Composite closing down 1% back under 3000, then Japan's rout accelerated with both the Nikkei (-3.7%) and the Topix Index sinking into bear markets, both falling more than 20% from their 2015 highs.
The rout then spilled over to Europe, where the Stoxx 600 is down 3% to the lowest level in 13 months, and finally making landfall in the US where the E-mini is down 1.8%, trading at 1840, meanwhile WTI is back under $28 while the USDJPY plunged to a one year low and barely rebounded despite an attempt at verbal intervention when an unknown Japanese government source said they are "closely watching currency movements", which lead to a 100 pip spike in the pair that was promptly faded. 
In sum: the world is on the verge of a global bear market, exacerbated by an ongoing earnings deterioration which has sent the MSCI gauge of global equities to the brink of a bear market. But the biggest driver remains oil whose slump to a new 12-year low is ripping through markets. Just on Wednesday, Royal Dutch Shell Plc said profit may drop at least 42 percent in the fourth quarter. U.S. bonds now predict the slowest inflation since May 2009. 
Commodity currencies were slammed with Russia’s ruble and Mexico’s peso falling to record lows, while bets mounted on an end to Hong Kong’s dollar peg. 
Saudi Arabia also launched capital controls when it was reported overnight that it had ordered a halt to Riyal forward option trades.
Yields on 10-year Treasuries dropped below 2 percent and the yen jumped to a one-year high.
“It’s back to oil and that’s what is driving everything at the moment,” Barra Sheridan, a rates trader at Bank of Montreal in London told Bloomberg. “We can easily run more because it’s pure fear. I don’t know what we need to change this sentiment.”
Well a central bank intervention or two would help. For now, this is where the "running" has taken global assets as of moments ago:
  • S&P 500 futures down 1.8% to 1840
  • Stoxx 600 down 3% to 323
  • FTSE 100 down 2.9% to 5706
  • DAX down 3.1% to 9361
  • German 10Yr yield down 6bps to 0.49%
  • Italian 10Yr yield up 2bps to 1.57%
  • Spanish 10Yr yield down 2bps to 1.69%
  • MSCI Asia Pacific down 2.8% to 117
  • Nikkei 225 down 3.7% to 16416
  • Hang Seng down 3.8% to 18886
  • Shanghai Composite down 1% to 2977
  • US 10-yr yield down 9bps to 1.97%
  • Dollar Index down 0.12% to 98.87
  • WTI Crude futures down 2.8% to $27.65
  • Brent Futures down 2.2% to $28.12
  • Gold spot up 0.7% to $1,094
  • Silver spot up 0.5% to $14.10

Credit to Zero Hedge

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