Risk Off Wrecks the Markets

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Market Drivers March 22, 2017
USDJPY nears 111.00
Commdollars sell off sharply
Nikkei -2.13% Dax -0.78%
Oil $50/bbl
Gold $1247/oz.

Europe and Asia:
EUR EU Current Account 24B vs. 31B eyed

North America:
USD Existing Home Sales 10:00

Risk off flows intensified in Asian and early European trade today with USD/JPY dropping towards the 111.00 figure as yields compressed further and investors remained jittery.

Commodity dollars were hardest hit with Aussie falling below the 7650 and kiwi drifting towards the .7000 figure. With no major economic releases on the docket today, equity flows are sure to dominate trade for the rest of the day and if stocks continue to sell off 111.00 in USDJPY and .7000 in NZDUSD are sure to be breached as sentiment turns decidedly sour.

It’s difficult to pinpoint the key catalyst for the selloff, but the general consensus is that the testimony of FBI Director James Comey raised fears that the Trump Administration, which is under the investigation for alleged ties to the Russian government may be facing serious political risk. At very least, Mr. Trump’s economic agenda appears to have been sidetracked as the focus on investigation creates the risk of impeachment.

At this point, it is far too premature to speculate as to the full extent of culpability of Mr. Trump and his associates, and Mr. Comey’s testimony may have simply served as a welcome excuse for profit taking in equities which have enjoyed and extended run. Still, the risk off selloff is very likely to be much more than just a one-day affair, especially if damning accusations continue to leak from the investigation.

We have noted in the past that despite relatively sound growth, US consumer sentiment and spending have remained tepid. Indeed, most of the increase in consumer sentiment has been primarily due to the rally in equities. Given that dynamic, it’s quite possible to see a sharp U-turn in sentiment figures if the selloff in equities accelerates which in turn could temper spending and growth and force the Fed to abandon its normalization schedule. USDJPY therefore, remains vulnerable to more downside pressure as do all the high beta currencies which are caught in this risk off selloff.

Boris Schlossberg
Managing Director

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