FX markets were roiled overnight after Apple (NASDAQ:AAPL) President Tim Cook announced it was lowering its quarterly revenue growth projections. The news as New York traders were heading home and Asia traders were just getting started. The reaction was swift and painful.
Apple shares plunged 8.25% in after-hours trading, falling from $157.92 to $145.19 and it sent shivers throughout global equity markets. US equity futures suggest Wall Street will open in negative territory today.
The Apple news triggered an "FX flash crash." The Australian dollar dropped 4.18%, and the Japanese yen soared 3.64%, within minutes. The moves occurred during a period when FX liquidity is at its worst. Only Australia and New Zealand markets were open. The Canadian dollar plunged alongside the Australian dollar, but its losses were cushioned by a spike in West Texas Intermediate (WTI) prices. None of the moves were sustained as prices quickly reversed course.
The Asia FX action set the tone for the rest of the overnight session as well as today's activity. Traders are nervous, and liquidity is still at a premium- as many market participants are still on holiday. A lack of actionable economic data hampered European traders.
GBP/USD failed to fully recover from the "flash-crash" selloff. Prices plummeted from $1.2610 to $1.2413 in early Asia recovered to $1.2580 and consolidated in a $1.2540-80 range in New York trading. Sentiment is extremely negative due to the rising risk of a "no-deal Brexit", but extreme short GBP/USD positioning has limited the downside.
The Canadian dollar has managed to eke out some support from oil price consolidation. WTI prices have found a short-term bottom at $44.30/barrel since the last week of December as new crude production cuts by the Organization of the Petroleum Exporting Countries go into force. OPEC agreed to cut production by 1.2 million barrels per day beginning January 2019 and Alberta already trimmed its crude output by 325,000 b/d. However, fears that a prolonged U.S./China trade war would curtail demand while US production continues to rise has capped WTI price gains.
The recent Caixin China Manufacturing PMI reading of 49.7 suggests that its economy is starting to contract. The Apple revenue warning is further evidence that global growth slowdown fears may be warranted.
Another source of equity and FX market turmoil is the U.S. Federal Reserve. Fed Chair Jerome Powell’s flip-flop on the interest rate outlook has led to traders downgrading their US interest rate forecasts. Powell said that the Fed is data dependent and that comment will ensure extra scrutiny for Friday’s non-farm payrolls report. Better than expected data will help alleviate concerns that the U.S. is heading toward a recession.
Today’s U.S. data which includes ADP employment will take a back seat to Wall Street price action.
