Volatility galore! Oil below $40, S&P and DJIA down 3%, EURUSD up 1%…


What is normally an end of August slow summer trading Friday was anything but, as fears over China and emerging markets snowballed into a general risk-off trade.

A lot is being written on the causes for the current selloff, which saw all three major US equity indices (DJIA, S&P500, NASDAQ Composite) shed more than 3%, so we’ll focus just on the fallout.

In the equity markets, another very weak day in China with Shanghai’s SSE Composite Index down 4.3% – and 12% for the weak – set the tone for the rest of the world’s equity, bond and currency markets. Further indications of a slowdown in China, such as new data indicating weak factory activity, was supposedly to blame today.

European markets took their cue from overnight China trading as the FTSE 100 shed 2.8%, with the losses picking up steam in the afternoon as US markets opened down big and continued downward during the day.

The weakening China story led WTI Crude Oil October futures down to below $40 per barrel for the first time in nearly seven years, before recovering somewhat to about $40.25 as of the time of writing.

And in the currency markets, which had seen a lot more calm than other markets lately, the selloff in emerging markets currencies such as the Mexican Peso led to a head-for-the-Euro risk-off trade. The EURUSD strengthened more than 1% to sit above 1.135, its highest level since mid June.

Another currency hit hard by today’s action was the Canadian Dollar, heading south with weakening oil prices. The Loonie fell about 3/4 of a percent Friday, and is now worth just under 76 cents US.

Traders will have a lot to think about this weekend. Is this the beginning of a longer downward trend and bear market, or just a correction to what has been a free-money fueled multi year bull market which still has time to run?

One more thought – all this volatile action should bode very well for the August trading volumes and Q3 results of Retail Forex brokers, whose fortunes rise and fall with market volatility. We will soon see. Stay tuned to LeapRate…

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Volatility galore! Oil below $40, S&P and DJIA down 3%, EURUSD up 1%...

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