Fed Can't Stop Dow Slide, Japanese Yen Dominates

The Dow Jones Industrial Average continued its recent rout as the Fed remained helpless through market turmoil, sending the Japanese Yen to its largest single-day gain since 1998. The US dollar was comparatively bid across major forex pairs, but it nonetheless dropped a whopping 550 points against its Japanese counterpart. Carry trade pairs likewise saw their largest decline in decades, with the Australian and New Zealand dollars astoundingly lower through recent trade.

The Euro saw a record drop against the Yen, losing nearly four percent to daily lows of ¥149.99. British Pound bulls were similarly punished, with the Sterling-Yen shedding an incredible ¥8.00 to ¥221.43 through time of writing. Of course, the US dollar was no exception to the rule?falling to 14 month lows of ¥111.97.
US economic data took a back seat to overwhelming market volatility, with equity routs and credit scares forcing the US Federal Reserve to re-inject liquidity to lending exchanges. Such a move was little avail, however, as the Dow Jones Industrial Average continued its daily plunge. A later intraday reversal in the Dow ameliorated the simultaneous carry trade unwind, but the Japanese Yen nonetheless continued astoundingly higher through afternoon trade.

Major European bourses closed 2-4 percent lower and many breached negative territory on a year-to-date basis. Given a fairly recent emphasis on record highs in corporate shares around the world, this is an astounding turnaround in such a short period of time. After the European market closed, US markets reversed earlier declines?sending the Dow a full 243 points off of its daily lows. Despite the bounce, the S&P 500 Index now rests 1.43 percent off of its January open at 1,398. The tech-heavy NASDAQ Composite is now a meager 0.7 percent higher from the 2006 close, while the Dow Jones Industrial Average retains the title of best US performer at +2.2 percent year-to-date.
Questions remain as to whether the short-term rebound in equities may continue, however, as any further shocks in liquidity would only doom risky assets to continued drops. This is most easily visible in highly-leveraged Japanese Yen shorts, with margin calls forcing traders to unwind positioning. Given a recent pattern of carry unwind continuation through later Asia session trade, it seems ill-advised to re-enter previous speculative bets on Yen depreciation. Indeed, little stands in the way of further drops across popular high-yielding currencies. The New Zealand and Australian dollars have already posted their largest single-day tumbles in decades, with Asian desks likely to continue selling the previously popular currencies.

Government bond markets unsurprisingly benefited from the day?s financial mayhem, with the benchmark 10-Year Treasury note adding an incredible 7/8 points to 101 and 1/16. Yields on the debt issue subsequently neared their lowest since May, 2006, losing 11 basis points to 4.61 percent.