Apple, China, Yen, And US Jobs: Welcome To 2019

The New Year is off to an auspicious start. The Japanese yen, the third most actively traded currency behind the dollar and euro, got caught in a vortex of a retail short squeeze, algos, and who knows what else. The US dollar plunged from around JPY109 to a slightly below JPY105 in a few minutes a little more than an hour after US markets closed yesterday.  

Japanese markets were still closed for the holiday, which may have contributed to the light liquidity. Market talk suggests the move may have begun as Japanese retail investors began unwinding short yen/long Australian dollar and short yen/long Turkish lira positions, both which have been favorite speculative retail plays in the first half of December.  There was a moment there that the yen had appreciated 10% against the lira and 8% against the Aussie.  

Recall, the Australian dollar gapped higher against the yen on December 3, the first trading day of December. That proved to be an exhaustion gap, and through the end of the year, the Aussie lost a little more than 8% against the yen. It was flirting with JPY76.00 late yesterday before plunging to about JPY70.65, according to Bloomberg.  That said, there is still no agreement on the extent of sterling's flash crash in October 2016, which so far, remains the recent low for sterling.  

Some link the pressure on the Aussie to its link as a proxy for China.  Shortly after the US markets closed yesterday, Apple reduced its sales outlook due to "unforeseen" slowdown in China. It is the first cut in its sales outlook in a decade, but many observers wonder how "unforeseen" it really was given the slowdown that is evident in the macro data.  The official and Caixin manufacturing PMI fell below 50 in December.  

Just as one can be known by one's enemies, so to can real economic assessment be known by the policy response. Chinese policy is set to ease on several channels: monetary, fiscal, taxes, and tariffs. Earlier today, for example, the PBOC changed the definition of small businesses for bank reserve purposes from a credit line of CNY5 mln to CNY10 mln (~$1.5 mln). This allows more companies to fall under the targeted reserve requirement ratio. It is not immediately clear how much cash will be freed up by the PBOC's new definition, but estimates run from almost $60 bln to a little more than $100 bln.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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