Global deleveraging continues this morning, with the yen carry trade unwind gaining momentum. With the yen strengthening to the 94 handle, the Japanese Nikkei plunged 6.4% (Nikkei down more than 20% from its recent closing high – bear market). The Shanghai Composite which resumed trading after the Dragon Boat holiday fell 2.8%, with Europe also selling off.
Futures here are actually mixed, with some encouraging economic data helping ahead of the open. Yesterday’s trading action, however, was concerning as the S&P 500 closed down ~25 handles from the open despite early strength. The 1,600 is the key level to watch today, as it likely to be tested again with global volatility taking hold once again.
Areas Of Focus This Morning:
World Bank Lowers Growth Forecast – Liquidation fears in emerging markets and Yen strength are driving volatility in nearly every asset class on the heels of the World Bank reducing its global growth forecast. The World Bank cut its outlook, saying the economy should expand more slowly this year than last as it cited a deeper-than-expected recession in Europe and a recent slowdown in some emerging markets. The World Bank also lowered China’s 2013 GDP forecast to 7.7%, from 8.4%. The cut was prompted by a slowdown in investment. It projects global GDP growth of 2.2% in 2013.
Jobless Claims And Retail Sales Data Modestly Better – The number of new jobless claims fell in the latest weekly data, pointing to a slower pace of layoffs. Applications for unemployment benefits fell by 12,000 to 334,000 last week. The four-week moving average declined to 345,250 last week from 352,500. Separately, retail sales climbed 0.6% in May, the largest jump in three months (on the heels of a 0.1% rise in April). Futures initially their losses in half after the positive reports, but pressure has since resumed.
Bond Market Volatility – Treasuries lost some of their gains, but stayed higher on the day after the release of positive economic data. The 10-year traded at a yield of 2.197%, 3.5 basis points lower on the day. The 30-year bond yield fell 3 basis points to 3.344%. Traders will be closely watching the 30-year bond auction today at 1 p.m. ET. In the backdrop of the recent bond sell-off it will be interesting to see how this auction shapes up.