Yen Shines as Stock Market Selloff Deepens

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  • US equities are removing early gains to close negative, falling yields are not helping
  • Yen progresses as risk aversion intensifies, oil yields to sad mood
  • Dollar hack, Netflix disappointed, US-Russian meeting in focus

Selling snowballs

The stock market just can’t shake the blues. Wall Street received another sharp hit yesterday as investors continued to unload riskier assets and turned to safe havens to isolate their portfolios from further disadvantage.

All this fuss started with worries around the Fed raising interest rates on a faster clip, but that’s no longer the driving force. Treasury yields have fallen for most of the week as traders hedge risk and yet, equities continue to bleed. Therefore, there is no longer a clear catalyst behind the sale other than the fear of further selling oneself.

This is the kind of move you would expect to see when market participants worry about something huge, like a Russian invasion of Ukraine, not the Fed trying to raise rates in a solid economy. But if that were the case, the prices of oil and gold would go crazy, which really didn’t happen.

Ultimately this is good news. While yields are stable or retreating, this will help mitigate the stock market from any brutal losses. It can always get uglier, but without a clear story behind the shell further, bargain hunters could soon show up to take advantage of the deepening discounts in many quality names.

Yen shines as yields retreat

On the FX spectrum, the Japanese defensive yen was the clear winner this week, capitalizing on all the risk aversion and the pullback in global yields. The US dollar had risen in recent sessions, but is still heading for solid weekly gains against the euro and sterling, both of which tend to fall in periods of market tension.

The sour mood also left its mark on the New Zealand dollar, which is currently experiencing multi-month declines despite money market prices in a Reserve Bank rate hike at every single meeting this year and recent stimulus measures in China.

The Canadian dollar has performed much better than its commodity cousins, helped by speculation that the Bank of Canada will speed up its recovery plans and raise interest rates next week. The final piece of this puzzle will be the sales numbers that will be released today.

Oil is retreating, geopolitics in focus

Meanwhile in energy markets, oil prices have regained the gravitational pull of risk sentiment, removing all of their gains for the week to trade lower instead. It seems that crude cannot ignore the chaos in stocks for too long, although geopolitical factors could also play a role.

Leading US and Russian diplomats will meet today for a second round of talks to ease the crisis around Ukraine. Whether these negotiations bear fruit could be crucial for traders trying to price geopolitical risk on assets such as oil and gold as rhetoric has become more heated recently with President Biden warning of a “heavy price” if Russia invades.

There is not much more in the economic calendar today. Instead, markets will turn their attention to next week’s events, which feature central bank meetings in America and Canada.

Finally, it’s worth noting that Netflix shares are down by a staggering 20% ​​in pre-market trading. after the flowing giant warned of a slowdown in subscriber growth during its quarterly revenue call.

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