Equities on heavy selling, Euro charges to highs

The Day So Far

Very heavy selling overnight, a continuation of arguably the most brutal selloff is equities witnessed since 2011. The bearish sentiment was inevitably sparked by some more extraordinary selling in the Shanghai Composite, finishing the session minus 8.46%. European stocks also opened sharply lower, on track for their worst month since 2008. For dominant theme driving these moves is anxiety over the lack of global growth and the fear that the central banks might not ‘have our back’ this time if equities continue to sink. Although, with T notes moving above the 129 handle for the first time since April, one might suggest that the news that the Fed is highly unlikely to hike rates now in light of the recent market upheaval should be a positive for equities at this juncture. However, given how eager the Fed has seemed in recent weeks/months to get the ball rolling re. hikes this year, the fact that they will not raise in September indicates that the macro economic situation must be deteriorating rapidly. Commodities are flashing red that a strong deflation/ weakening growth environment is here to stay, WTI falling below the $39 handle, a fresh 6 and a half year low. The euro, meanwhile, has charged to its highest level against the dollar since June as investors price in a ‘no hike’ at next month’s FOMC meeting.

The Afternoon View

Unsurprisingly, we have a risk-off bias for this afternoon; short equities, short euro and long t notes. Just Fed’s Lockhart, speaking after the European close, and the Chicago Fed Natural Activity Index, to be released at 13:00 BST, the only items of note today. Bigger tests to come this week, starting off with US Consumer Confidence to be released tomorrow.