As noted earlier this week, cross-market jumpiness seems a more accurate assessment of the prevailing mood, rather than panic.
Chips fried most
A smattering of European indices take on a greener tint as Wall Street opens. U.S. futures verge on erasing all overnight losses though they’re still sharply lower on the day. True, there’s no escaping the Apple (NASDAQ:AAPL) ecosystem, which of course also has a stock market corollary. Europe’s AMS specialist chip provider leads the region’s hardware-focused techs to the biggest sector index falls. Similar damage was meted out to shares in Asia-Pacific semiconductor and component makers too. Again though, it’s worth noting that the measured fashion (albeit amid punishing volatility) left most large APAC indices only moderately lower by close.
This seems to recognise that whilst Apple’s first revenue warning in almost 12 years was a nasty shock, it could well have been worst and the cause—chiefly China’s weakening fundamentals are hardly a surprise. In stocks, and in the dollar, bears are continuing a pattern from end-2018 of acting increasingly emboldened. But for now, they’re still holding their deeper instincts in reserve.
Flash attack
Naturally, the most obvious example is the latest ‘flash slip’ against the yen. It was very reminiscent of a savage sterling whipsaw in October 2016. Then, as per last night, the trigger of the surge was one-part global economic concerns. Apple’s unusual after-hours revenue warning was the catalyst this time. The rest was pure fear. Or at least the digital expression of such. Computer-driven strategies exacerbated the range and speed of USD/JPY’s collapse to its lowest since March 2018. Structural changes in the market, chiefly reduced participation of major participants like banks, also played a big part overnight. These factors are likely to mean dramas like last night’s will become more frequent, but casualties were limited on Wednesday. By extension, it’s clear that whilst aftershocks are possible, interpreting Wednesday night’s mayhem as a harbinger of things to come on a sustained basis would be going too far. That leave us with a smaller yen puzzle and a massive Apple one.
Dollar bounces only so far
In the yen’s most liquid pairing, there is now one clear point to watch. As noted, whilst USD/JPY rapidly sprang back from as low as ¥104.10 (according to some providers) tellingly, it has held off from ¥108. We suspect traders are wary of prices around there, specifically ¥108.10. The latter was an hourly spike low on 29th May 2018. It was also a clear antecedent of an uptrend that eventually peaked at ¥114.55 in October. As such, the typical thinking is that circa ¥108 remains ‘sensitised’ and could now be defended by large accounts. If the level holds and the pair definitively reverses—likely targeting liquidity as low as ¥106.4s on an initial basis—the read for risk appetite could soon be less nuanced and more on the bearish side. As we have stressed, investors’ itchy trigger finger on the ‘sell’ button is unmistakeable. Either way, with Apple’s carefully executed news bomb to work through, and Friday’s payrolls risk event looming, we do not expect risk-seekers to tarry, if they show up in numbers at all.
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