Volatility Shakes Global Markets After Shanghai's 8.5% Drop


Economic data

- (IR) Ireland July PPI M/M: 0.4% v 0.3% prior; Y/Y: 6.8% v 6.3% prior
- (IL) Israel July Unemployment Rate: No est v 5.2% prior
- (CL) Chile July PPI M/M: -2.8% v -2.2% prior
- (US) July Chicago Fed National Activity Index: 0.34 v 0.20
- (BR) Brazil July Total Federal Debt (BRL): 2.604T v .2584T prior
- (IL) Israel Central Bank (BOI) leaves base rate unchanged at 0.10%

Whether you call all it Black Monday or Flash Crash Redux, it's been a rollercoaster of a morning for markets. The DJIA's mind-numbing 530-point sell-off on Friday was followed by an 8.5% loss on the Shanghai Composite earlier today. In Europe, the DAX plunged into bear market territory and every stock in the FTSE was in the red. Commodity prices and currency cross have seen massive moves, while US equities gapped lower by the biggest margin since fall 2008. The DJIA fell more than 1,000 points and the S&P500 was down more than 100 points, while the Nasdaq fell nearly 9% before the buyers stepped in. And step in they have: as of writing, stocks have bounced higher, with the DJIA down 2.8%, the S&P500 off 2.5% and the Nasdaq down 2.8%. The 10-year yield fell as much as 11.8 bps to 1.919% before snapping back to 1.99%.

Perhaps the most dramatic FX market moves have been seen in USD/JPY, which has been under pressure since hitting the key 125 level two weeks ago. USD/JPY had been gradually moving lower, and was around 121 earlier today. The pair plunged more than five big figures between 03:30ET and 09:15ET, bottoming out around 116.15 before bouncing higher by three big figures to 119.0 after the open of US cash equity trading. EUR/USD was pivoting around the 1.1460 level through the European session, then quickly shot up as high as 1.1710 ahead of the US cash open, before dropping to around 1.1585 as of writing. WTI crude dropped below $38 briefly, after having declined from $41 earlier in the European session.

The signature feature of today's price action has been extreme volatility, as panic buying has following the panic selling. The VIX index of options volatility peaked at 50 around 09:00ET, hitting levels last seen in the aftermath of the financial crisis in early December 2008. Circuit breakers were triggered on the way down, the Nasdaq futures halted after they fell 5% in the premarket and the NYSE invoking rule 48, but then triggered again after the open of cash trade as a wide spectrum of individual stocks were halted limit up in the buying frenzy.

In other news, the Chicago Fed National Activity Index rose to 0.34 in July from -0.07 in June (the June reading was revised lower from an initial print of 0.08). The three-month average edged up to neutral from -0.08 in the previous month. Southern Company said it would buy AGL Resources for about $8 billion in cash or $66/shr, a 38% premium to Friday's close. The deal gives Southern a large network of natural gas transport pipelines, complementing its gradual move away from coal and toward natural gas and renewable power generation.

Looking Ahead

- 15:00 (AR) Argentina July Trade Balance: $0.3Be v $0.5B prior
- 21:00 (PH) Philippines Jun Trade Balance: $0.9Be v $0.5B prior; Imports Y/: -9.2%e v -13.4% prior
- 23:00 (NZ) New Zealand Q3 2-Year Inflation Expectation Survey: No est v 1.9% prior
- 23:45 (JP) Japan to sell 40-Year JGB Bonds
- (AR) Argentina Aug Consumer Confidence Index: No est v 56.09 prior
- (CO) Colombia July Retail Confidence: No est v 20.6 prior; Industrial Confidence: No est v 0.1 prior

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