It was a pure risk-off day in markets yesterday, as equities cratered and safety flows prevailed. At first, it was a rush to the dollar but that quickly turned into fear trading and the yen and bonds also benefited in the end.
There were some lingering tones early on in Asia as risk trades retreated but we are seeing a modest bounce now as we head towards early European morning trade. For one, S&P 500 futures are now up 22 points after having been down by as much as 25 points earlier:
In turn, we have also seen some bounces elsewhere with USD/JPY up to 130.25 from 129.80 earlier and AUD/USD in particular recovering from a low of 0.6912 to 0.6970, up 0.2% on the day currently. That said, the break under 0.7000 is still the key development in the pair so best be wary about that in trading this week.
As much as there is a bit of a bounce for now, it certainly may not stay the course considering the negative sentiment that has been looming since April trading. Not much has changed since then and the equities charts – US stocks in particular – look rather poor.
The S&P 500 is contesting a break below its 100-week moving average (red line) and the 38.2 Fib retracement level @ 3,815 is the next plausible support level. That points to another potential drop of over 4% in the index.