The Causes of Today’s Flash Crash
3 January 2019
Today’s flash crash in the FX markets was surprising to many of us. The triggers behind the slump in the currency’s markets are vague, and everyone was left wondering about a reasonable explanation. First of all, we think it is important to note that we are in a low volume trading environment and any reaction/news can be exacerbated in such thin markets.
Manufacturing Activity
A series of PMI reports released on Monday and Wednesday highlighted the weakness throughout the global manufacturing sector which has increased fears about the outlook for global growth.
- Caixin Manufacturing PMI fell from 50.2 to 49.7
- German Markit Manufacturing PMI fell from 51.8 to 51.5
- EZ Markit Manufacturing PMI fell from 51.8 to 51.4
- Canadian Markit Manufacturing PMI fell from 54.9 to 53.6
- US Markit Manufacturing PMI fell from 55.3 to 53.8
The heightened concerns brought additional turbulence in the stock markets when trading resumed on Wednesday, the first trading day of the year 2019.
Apple’s Revenue Forecasts
Apple’s move to downgrade sales on slowing iPhone sales in China fueled the fears about the global economy. Investors fled to safety and sought safe-haven assets like the Japanese Yen which surged through key support levels. Major currencies crashed against the Yen before paring some of the losses. The strong moves in the Yen pairs prompted speculators also to believe that Japanese traders were forced to exit their short yen positions.
USDJPY, AUDJPY, NZDJPY, GBPJPY, CHFJPY and EURPJY (Hourly Charts)
Source: GO MT4
In the stock markets, given that Apple is the bellwether for the technology sector, the surprise announcement weighed on the technology stocks in the Asian session. The performance in Asia/Pacific region was mixed, and investors struggled to find a direction.
Source: Bloomberg Terminal
We may see more downgrades in the months to come as slowing global growth and trade tensions will probably remain the key challenges in the financial markets.
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