Stabilisation

Monday was the day when the fear of the unknown truly gripped markets, with diminished August trading volumes serving to massively exacerbate moves. The major volatility stemmed from the kiwi at lunchtime during European trade, which in turn triggered a more than 3 big-figure move on USDJPY. It makes little sense to try and rationalise these moves as they are a function of stressed and illiquid markets. That said, it’s clear that markets are waking up to the implications of a sustained economic slowdown in China, combined with a government that is stepping back from intervention, including in the stock market where the rally they initiated is now collapsing. Overnight we've seen Chinese stocks continue to fall (although only by 7.5% this time) although most other Asian equity markets are in positive territory. Contagion and China are not normally words that go together. The correlation between the Shanghai composite index and the MSCI developed market index over the past two years has been exactly zero (rolling 1-month correlation). So the fact that we’ve seen correlations rise drastically over the past 2-3 weeks reflect a dramatic sea-change versus recent history.

For today, data will prove to be only a minor distraction from the fragile tone to markets. The German IFO data is seen at 08:00 GMT, with U.S. consumer confidence and provisional services PMI seen later the day. FX at least has seen a calmer Asia session, with a decent recovery in the Aussie dollar seen back above the 0.72 level and the yen continuing to weaken against the dollar after yesterday’s dramatic moves.

Share: Analysis feed

FxPro UK Limited is authorised and regulated by the Financial Services Authority, registration number 509956. CFDs are leveraged products that incur a high level of risk and it is possible to lose all your capital invested. Please ensure that you understand the risks involved and seek independent advice if necessary.

Disclaimer: This material is considered a marketing communication and does not contain, and should not be construed as containing, investment advice or an investment recommendation or, an offer of or solicitation for any transactions in financial instruments. Past performance is not a guarantee of or prediction of future performance. FxPro does not take into account your personal investment objectives or financial situation. FxPro makes no representation and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied by any employee of FxPro, a third party or otherwise. This material has not been prepared in accordance with legal requirements promoting the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. All expressions of opinion are subject to change without notice. Any opinions made may be personal to the author and may not reflect the opinions of FxPro. This communication must not be reproduced or further distributed without the prior permission of FxPro. Risk Warning: CFDs, which are leveraged products, incur a high level of risk and can result in the loss of all your invested capital. Therefore, CFDs may not be suitable for all investors. You should not risk more than you are prepared to lose. Before deciding to trade, please ensure you understand the risks involved and take into account your level of experience. Seek independent advice if necessary. FxPro Financial Services Ltd is authorised and regulated by the CySEC (licence no. 078/07) and FxPro UK Limited is authorised and regulated by the Financial Services Authority, Number 509956.