Stocks Crash as Treasury Yields Push Higher and Hurricane Makes Landfall

It was a perfect storm for equities today on Wall Street, as the rise in Yields following the release Producer Price Index (PPI) was joined by the landfall of the rapidly intensifying Hurricane Michael in Florida. Sentiment quickly turned from bad to worse and as the short-term oversold conditions didn’t lead to a bounce, buy-the-dippers got crushed.

Nasdaq 100 Futures, 4-Hour Chart Analysis

We warned against jumping on the bullish train even as a short-term bounce seemed likely, as the deterioration under-the-hood reached the core of the market, the signs of a regime-change in the VIX are apparent, and the market-leading tech names are seeing significant outflows, leading to an almost 5% decline in the Nasdaq just today.

With valuations still being sky-high in the US, there is plenty of room for correction, and as long as central banks keep removing liquidity, the market will be out of the rocket fuel that powered the bull market.

VIX (Volatility Index), 4-Hour Chart Analysis

The Volatility Index (VIX) topped the 22 level for the first time since April, and as the indices extended their losses in after-hours trading tomorrow’s session could see further turmoil.  While the US bull market could still revive, even for only a re-test of the highs, given the persistent weakness in Europe and in emerging markets the headwinds continue to intensify.

10-year US Yield, 4-Hour Chart Analysis

Interestingly, while yields pushed higher after the PPI release, the yield curve remained below Monday’s levels, as the stock rout lead to buying in bonds, even as the Treasury selloff was one of the main triggers of the selloff in equities in the first place. Tomorrow’s CPI report could be the next big thing for risk assets although the European Central Bank’s policy meeting accounts could also make waves in European trading.

Forex Markets Hectic Amid Equity Crash

EUR/USD, 4-Hour Chart Analysis

As Treasury yields settled down, the major forex pairs were mixed, with the Yen surging the most thanks to safe-haven flows. The Dollar also lost ground against the Yen, but was stable against the Euro, closed in the green compared to most of the risk-on currencies, but remained weak against the very strong Pound.  Forex traders could be in for another wild ride tomorrow, and the focus might be back on EUR/USD, while the Yen could also have another volatile day.

Gold Futures, 4-Hour Chart Analysis

Commodities also had a tumultuous day, as, despite the devastation of Hurricane Michael, WTI Crude Oil rolled over amid the deep risk selloff, while gold recovered thanks to safe-haven flows. Copper also fell significantly in US trading, and given the after-hours trends, the Asian session could be hot for Dr. Copper and of course risk assets in general.

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Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.