Rumours of a major US energy company preparing for bankruptcy are a telling insight into the current market psychology. USD/JPY and the Nasdaq hit their lowest since late 2014 as risk aversion took hold. Australian business confidence highlights quiet Asia-Pacific trading.
China on holiday and a quiet economic calendar might have given markets a chance to stabilize Monday but the opposite was the case. The weak finish on Friday spilled over and sentiment was soft at the start of US trading.
It crumbled shortly after a report surfaced that natural gas giant Chesapeake Energy had hired a restructuring law firm. Shares of the company fell 50% before being halted. The company later said it has worked with the firm for years and had no plans for bankruptcy but that only trimmed the loss to 33%. We have no idea what's on Chesapeake's balance sheet but when the market is capable of believing that a $2 billion market cap company is on the verge of bankruptcy is telling. It indicates traders panicking about the next shoe to drop in the latest commodity collapse.
An old saying on Wall Street is that whenever there is a crisis 'Citi is there'. Meaning that Citigroup will be stuck with the bad assets. How hard commodity declines hit Main Street depends on how insulated financials are. But with shares of Citi down 27% since the start of the year, Wall Street is worried and the Fed remains wrongly focused on China.
One data point that may grab the Fed's attention from Monday was the NY Fed measure of consumer inflation expectations. It fell to 2.42% from 2.54% in another dagger in March hike hopes. Yellen will have the opportunity to acknowledge turmoil and back away from a hawkish stance at this week's Humphrey Hawkins testimony.
Markets might not be prepared to wait that long. USD/JPY broke below 115.50 Monday, taking out a rough quadruple bottom and leaving little support until 110.00. The Nasdaq broke a similar support level and the S&P 500 is on the cusp of cracking as well.
Gold is acting as an effective hedge and defensive play in a sea of volatility this year, hitting $1200 on Monday.
Chinese markets remain closed all week but the rough ride in US trading is likely to reverberate in Australia and Japan. Note that nickel fell 4.5% Monday to a 12-year low and that could hurt miners. The lone data point of note is the 0030 GMT NAB Australian consumer confidence index. It was previously at +3.
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