Wall Street Holiday Comeback May Echo in Asia as Yen Prices Fall

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Asia Pacific Market Open – S&P 500, Dow Jones Industrial Average, Japanese Yen, New Zealand Dollar

  • After an extended selloff, S&P 500 experienced best day since 2009. Dow Jones had record day
  • Traders may have been taking profits, crude oil climbed with sentiment and Russia output cut bets
  • Risk aversion may take a breather in Asia Pacific stocks, weakening JPY as AUD and NZD rise

See our study on the history of trade wars to learn how it might influence financial markets!

The rout on Wall Street finally took a breather after S&P 500 futures declined for 8 consecutive days and experienced its worst Christmas Eve trading session in history. On Wednesday, not only did the S&P 500 have its best performance in a single day since March 2009 (+4.95%), but the Dow Jones Industrial Average climbed over 1,050 points in its most impressive rise over the course of one trading day in history.

An immediate catalyst for such a turnaround in sentiment seemed absent. Newswires were pointing to triggers such as record holiday sales from Amazon to reports that Fed Chair Jerome Powell is pretty much guaranteed to keep his job despite vocal criticism from Donald Trump. However, the country is still in the middle of a partial government shutdown. The President reiterated his position on border wall funding today.

What seems like the more plausible situation is traders taking full or partial profits amidst the decline in US indexes given the extended selloff. As a result, this had direct impacts on FX. Anti-risk currencies such as the Japanese Yen and Swiss Franc depreciated. Meanwhile the more pro-risk Australian and New Zealand Dollars aimed higher.

The US Dollar was mostly up but struggled in some cases to hold gains against AUD and NZD. The Canadian Dollar welcomed the rally in sentiment-linked crude oil prices which rose by the most since February 2016 (+9.7%). This also followed remarks from Russia’s Energy Minister Alexander Novak yesterday that the country is seeking to curb oil output in the first quarter of 2019.

With that in mind, Asia Pacific benchmark indexes may echo the rosy performance seen on Wall Street, especially given the lack of prominent economic event risk. This is further bolstered by reports that US and China are scheduling mid-level trade talks come January. If market mood does indeed improve, the Japanese Yen is likely to suffer as the Australian Dollar pulls ahead. I am still short NZD/USD.

US Trading Session

Wall Street Holiday Comeback May Echo in Asia as Yen Prices Fall

Asia Pacific Trading Session

Wall Street Holiday Comeback May Echo in Asia as Yen Prices Fall

** All times listed in GMT. See the full economic calendar here

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