Stock Market Volatility Intensifies As the FX Market Stays Insulated Against Assault

The markets are still in very volatile trading, with stocks and US Treasuries soaring overnight. However, these moves were not followed in mixed Asian markets.

Stock market volatility remains elevated as major stock markets in Europe and the US closed higher yesterday. EuroStoxx 50 rebounded after a bad start and even closed about 1% higher.

US benchmarks fared even better (> 2% for the day), but should have returned some of those gains to close after some (online) retail brokers restricted trading on some of the companies hit by the short-term crisis this week.

The decision came after they were forced to bolster their financial position to meet fluctuating requirements for SEC net capital obligations and clearinghouse deposits. Yesterday’s improvement in the risk situation had virtually no impact on trading in financial instruments or currencies.

FX Market Stays Insulated Against Assault
Ironically, the stock market pandemonium was hardly felt in the FX arena. The euro/dollar, for example, remains in a tight range, while Cable is still near its recent highs, but has done nothing this week.

But there were also important breaks. The yen falls despite wider risk aversion. The retreat may be related to the latest Bank of Japan Consolidated Opinion Review, which is generally cautious.

While there have been some hints that Japanese bond yields may trade in a wider range, as recent reports suggest, officials fear that markets will interpret this as a policy tightening. The hint was that if the Bank of Japan moves forward with this “tightening”, it may also introduce some other easing strategy to keep the overall policy stance unchanged.