Asian stock markets have joined in Thursday’s down move on Wall Street this morning as local exchanges turned red, and the proxy for Asian risk-sentiment, the Nikkei 225 index, crashed lower by over 4 percent. Asian bond markets also got in on the action and joined the global rout.
News that the United States has launch an airstrike in Syria against infrastructure used by Iranian back militia also helped to increase the risk-off mode in Asia. The strike was reportedly in response to an Iranian attack on United States interest in Iraq. Markets clearly fear that US-Iranian tensions could spill over and add to already strained relations.
The US dollar index started to firm during yesterday’s US session, as the greenback started to break its early-week divergence with rising bond yields. One of the main reasons behind the flight into the greenback was risk-off and fears of the bond market overheating.
Markets feared that US yields had come to far too fast. The speed of the US 5-year and 10-year bond advance really prompted the flight back into the buck and caused a number of recent FX trades to unwind.
In particular, the AUDUSD pair tumbled by over one-hundred points after tagging 0.8000 on Thursday, the British pound currency was also down by around 300 points from the highs of the trading week. The EURUSD pair is also notably moving lower, and trading around the 1.2130 level, after moving above 1.2230 on Thursday.
It is a similar story in Europe equity markets this morning as well, with German, French, and Spanish yields rising. ECB member Lane has come out on the wires and noted that the European Central Bank is closely monitoring the rise in bond yields.
WTI and Brent oil are down on the day and suffering this morning as the risk-off move in global financial markets has helped to reverse some solid gains in the recent long commodity trade, which has been so prevalent this week.
Gold is trading towards the worst levels of the year, while silver has broken under the $27.00 support and given up its weekly gains. Copper has reversed as well, although the red metal is still holding above the $400.00 level.
Bitcoin has also suffered from the risk aversion in Asia. The top cryptocurrency has crashed by nearly $7,000 since yesterday. The cryptocurrency market looks set to post its worst week since Black Thursday.
The economic calendar in the European session is fairly light today, with Swiss Gross Domestic product data set to headline. Swiss GDP is expected to have flatlined during the fourth fiscal quarter, while year-on-year GDP is expected to have declined by over 2 percent.
Looking to the US trading session, the main event on the economic docket will be core PCE and Personal Spending data from the United States economy. Any hint of inflation picking up inside the Federal Reserve’s preferred inflation metric could cause bond yields to ramp higher again today.
The big theme going onto the weekend will of course be the bond market. However, traders should remember that a vote is happening over the US $1.9 trillion plan, so expect more volatility. The VIX has notably started to breakout as well, so watch out for plenty of market action today and Monday.