Market Volatility

Pressure from the unwinding of the carry trade has caused turbulence in markets creating a touch of a Black Monday feel to markets today. The sell-off in Japan literally was worst that the infamous Black Monday in 1987 when it lost over 3,800 points. On Monday Japanese markets closed over 12% down and finished their worst three-day drop in history.

Markets are in a touch of chaos right now with volatility measures spiking and we have good guidebooks from history on how to manage these moments. We have discussed on the Trading Justice podcast yesterday the potential for this environment and will be walking individuals in the Trading Lounge every day through the specific volatility playbook for this environment.

It is hard to hear on a day like today but these environments tend to stabilize and provide opportunity. They always have. So, unless you think the end of markets is occurring, which we do not, this is a time to check in, be responsible, do not panic, and look for those opportunities that develop in the coming weeks.

Stocks in the News

• Apple (AAPL) – Apple is down with many other stocks after Berkshire Hathaway reported over the weekend it had cut its stake in Apple by almost 50%
• Nvidia (NVDA) – Report out that the AI leader’s next batch of artificial intelligence chips will be delayed

Economic Section

Recessionary risks are swirling around the last couple of days after the economic data to end the week. This has added to a complex risk-off environment in markets. There are few economic reports of note this week with unemployment claims on Thursday and ISM Services PMI data this morning. The PMI data this morning came poured a little cold water on the “Winter is Coming” narrative at least for the short-term.

• ISM Services PMI – Previously at 48.8 and jumped back to expansion territory at 51.4 signaling expansion. This beat expectations.

The Chief Business Economist at S&P Global Market Intelligence said:

• “Thanks to the relatively larger size of the service sector, the July PMI surveys areindicative of the economy continuing to grow at the start of the third quarter at a rate comparable to GDP rising at a solid annualized 2.2% pace.”

If positive data starts coming in, the “Winter is Coming” narrative will be short-lived.

Next 24 Hours

While other narratives will dominate in the weeks to come, the next 24 hours will all about seeing whether we get stabilization in the currency market or if there is continued volatility. There are numerous secondary earnings reports and economic data points but this is a currency moment and those charts will give signs that the worst of the short-term rout is behind us.

Chart of the Day: USD/JPY

The chart that everyone is talking about to start the week. Violent unwinding of the carry trade has led to volatility surges in markets around the world. As the volatility in this chart dies down we would suspect the other volatility will as well.

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