What is going on in the market right now and why is the stock market crashing?

10 year bonds over last 3 days.

SPX last 3 days

Fed ODDS from OIS market.


Stock market in USA has crashed almost 5% in a matter of two days as the market is forcing FEDS hand to cut more after they showed a hawkish stance during their press conference. Trump clearly wants the fed to cut and it is possible that Trump is increasing rhetoric with China to push the market down a bit to force feds hand. It all seems like a conspiracy but definitely seems to be playing out very well. I will make a separate article on why this could work or not work later this week.

 

What’s going on today

  • Reports (since denied) that China would halt purchases of US agriculture hit already-fragile market sentiment to start the week. Asian equities tumbled 2-3%, while European stocks are down 1.5-2%.
  • USDCNH spiked above the psychologically-important 7.00 level, as Asian currencies tumbled against the USD (KRW -1.5%). Safe-haven currencies have benefited (USDJPY traded below 106 for the first time since January’s “flash crash”, CHF +0.7%), while dollar-bloc FX are lower. USDCAD is at 1.3240.
  • Yields are sharply lower, with 10yr Treasuries down 8bps to 1.77% while UK gilt yields are down 4.7bps and 10yr Bund yields -2bps after hitting touching a low of -0.535% early today. Gold (+1.1%) has climbed to a fresh six-year high ($1457/oz) while Brent is down 1.1%.

 

What I am Watching in Markets Today

 

FX:

The week is opening on a very shaky footing as USDCNH has spiked clearly above the psychologically-key 7.00 threshold. The pair now looks significantly overbought on the daily RSI, but I think momentum and continued political tensions will carry it higher in the days ahead. Elsewhere, the JPY remains buoyant as risk aversion is the name of the game. The drop in USDJPY below 106 has seen a MOF official declare they were “watching moves in the exchange rate with a sense of urgency.”

Rates:

With the market still digesting the additional tariff threats and potential retaliation from China, the focus will be on headline risks as well as on US ISM non-manufacturing data. The market should continue to perceive lower rates as the base case with the Fed likely forced to account for impact of further trade escalation.

CNY in what appears to be a significant escalation of the ongoing US-China trade spat, USDCNH spiked to an intraday peak of 7.1114 amid press reports that the Chinese government has instructed state buyers to halt purchases of US Agricultural Imports. This comes after the CNY fixing came in at 6.9925, its highest level since last December. Elsewhere, the Caixin services PMI slid to 51.6 against consensus expectations for an unchanged reading of 52.0. Within this, the new orders component rose to 51.8 from 51.2 in June, while the employment sub-index also ticked up to 50.6 vs 50.2 in the previous report.