by Chris Becker
So what happens when the Federal Reserve raises rates twice. In a decade. And broadcast it to all and sundry before the event, with interest rate futures at 100% probability. Do markets act like a smart person and accept it and move on? No, they act like a crowd of people – and almost lose their collective s h one t.
So after the “Shock horror” of last night, Asian bourses had to react today and it was a broad sea of red outside Japan, which had the honor of its domestic currency blown out of the water by a resurgent USD. Bonds continued to selloff as Aussie ten year yields flirted with 3% while commodities were relatively stable.
The Shanghai Composite has broken below key support, down 0.6% after lunch through to 3120 points. If this holds going into the close, the next level to reach will be slightly stronger support at 3000 points. The Hang Seng is not doing any better, down nearly 2% and almost ready to break its own key support level at 22000 points:
In Japan, the Nikkei and Topix both lifted 0.5% as the Yen was sold off by everybody and their grandmother. The USDJPY pair made good on the Fed rate rise, launching straight up to 118 handle on the Tokyo open before consoldiating here at 117.50 – my target is 125 over the long run, so pullbacks are to be expected:
S&P Futures are slowly building heading into the London open, trying to lick the wounds from last nights silly rout in stocks. I’m watching the higher moving average here at 2255 or so for signs of real life:
The ASX200 was sold off alongside everything else, down nearly 1% in losses across the board. Banks were mixed, but it was commodity stocks that did the heavy drag with Santos down 10% and BHP/RIO off nearly 2% as USD surged.
The Aussie dollar is also licking its wounds, and rallied somewhat on the good unemployment print, but I don’t think we’ll see the 75 handle breached for a long time. The highs are already coming off the rebound, so I expect the Peso to come under more pressure in a few hours:
The data calendar includes a raft of preliminary services PMIs in Europe tonight, but then another USD big catalyst – November CPI in the US is next.