Stocks seen biggest drop since 2010. Sell USD/JPY?
The VIX index has more than doubled during the peak stock sell-off, posting one of the highest one-day gain on record. It topped at 38.8, a new high since August 2015 when China PBOC unexpectedly reformed the yuan fixing regime that caused the yuan to plunge.
- Treasury rally extends as Dow index slid over 1175 points, 4.6% overnight, one of the biggest since 2010. This is a sign of funds chasing for safe-haven now
- S&P 500 dropped as much as 4.2%, sparking Treasury futures volume surge as 10Y yields shed as much as 13.6bp. Between 3pm-3:10pm NY time, 266k TYH8 (UST 10-year matured at 18th March) contracts traded and that pressured yields to reach 2.705%, according to Bloomberg data.
- When London market opened yesterday, 10-year yield traded 2.5bp higher in long end, while 2Y and 5Y are widened by 1.5bp-2.5bp and this may cause some "tightening fears". The short-covering seen in Treasuries at US opened shows an artificial risk-off move.
- The unwinding of positions betting on continued low volatility, also known as index-option gamma hedging, and short-volatility trades encouraged some flows to leave the US stocks portfolio.
- Current valuations on a P/E basis are now more attractive. The amount of inflows in coming days will decide whether it's a buying opportunity or it just a start of selling off.
Fullerton Markets Research Team
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