Japanese Yen Rallies on Dow Tumbles, Dollar to Decline Further on Treasury Yield Slid

The Japanese Yen stole broader market headlines on the day, as a pronounced jump in risk aversion led it significantly higher against all major world currencies. The US dollar initially saw a bid on sharp European currency sell-offs, but a continued stock market rout pushed the dollar lower through time of writing.

New economic data did little to help the greenback?s cause, with both US Durable Goods orders and New Home Sales coming in well-below consensus forecasts. The former showed that orders for June were broadly worse than expected, with disappointments in the headline and ex-transport indices leaving bearish implications on the release. It serves to note, however, that the declines were mostly due to national Defense spending. Excluding official defense expenditures, Durable Goods Orders actually gained 1.9% percent in June?the best reading since a 5.3% surge in March. Viewed as such, the gauge of capital expenditures growth showed relatively healthy gains for overall industry. Yet we likewise see that much of this growth was due to increased spending on non-defense aircraft, which gained an impressive 28.7 percent through the period. The net implications of the durable goods data are similar to those we saw in May. Namely, US firms and consumers have continued to scale back demand for capital goods.
A later New Home Sales report further worsened outlook on the domestic housing sector, with purchases registering a 6.6 percent tumble through June. Though the figure was significantly below consensus calls for a 2.7 percent decline, markets seemed hardly surprised following the continued wave of dismal housing numbers. Homebuilder shares and other real estate-linked equities continued their previous declines, but the US dollar actually continued higher in the moments to follow. It seems as if markets have grown accustomed to poor housing data, but the key question remains how this will all pan out in tomorrow?s US Gross Domestic Product report. Any disappointments in the figure could very easily lead to further dollar declines.
Equity markets saw incredible losses through the afternoon, leaving the Dow Jones Industrial Average a whopping 282 points off to 13,502 through time of writing. The broader S&P 500 index saw a bigger percentage move at 35 worse at 1,483, while the NASDAQ Composite dropped a similar 60 points to 2,588. Continued flight to safety was the main culprit for the losses, while a surge in the S&P 500 Volatility Index, up 3.34 to 21.44, did little to calm fears of a continued slide.
US Treasury markets were the biggest gainers on the day, leaving yields substantively lower through the same period. The benchmark 10-year Treasury added 13/16 points to 97 and ¾, while the yield slid 11 basis points to an exceedingly low 4.79 percent. Such continued losses in yield can only add to recent dollar selling.