Plunging Futures, Yen Rebound Show Market Still Scared To Death Despite Wednesday Rally

A couple of things stick out on Thursday morning as traders cast a wary eye at an unreliable market a day on from the best rally since 2009.

First of all, futures are pointing to a sharply lower open, although as we’ve seen, this can all turn around in a flash (and “flash” can be taken figuratively or literally there). As of 6:30 AM in New York, things weren’t looking great.

The other thing that stands out is the mammoth rally in Japanese shares overnight.

(Bloomberg)

On U.S. equities, we’ll just have to see what happens. As noted on Wednesday afternoon, you can hardly trust the price action right now and it seems like some folks were forced buyers into the close. Reversals today wouldn’t be at all surprising, nor would it be surprising to see the bottom fall out completely in light of the fact that not much has actually changed since Monday unless you want to count Kevin Hassett saying Jerome Powell’s job is safe and/or the hundredth headline about the U.S. and China preparing for trade talks. In any case, here’s the fade:

(Bloomberg)

And here’s an annotated visual for December which, while hardly comprehensive in terms of identifying each and every dramatic twist and turn, gets the point across.

(Bloomberg)

As far as Japanese equities go, we documented Tuesday’s bloodbath in Japan pretty extensively here, as it marked a critical moment. The Nikkei joined the Topix in a bear market and USDJPY had fallen for eight consecutive sessions, through its 200-DMA as haven demand bolstered the yen and stateside political turmoil dented the dollar.

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Nikkei Suffers Grievous Loss In Dramatic Rout While Plunge Protection Team Rides To Rescue In China

USDJPY surged Wednesday for obvious reasons (risk-on fever, the perception that Powell and Mnuchin might be safe at least for the time being), but we would be immediately cautious of Thursday’s rally in the Nikkei. USDJPY is on the back foot again this morning, and even if things turn around, the quick snap back speaks volumes about the prevailing market mood. This would be nine out of ten sessions USDJPY has been lower.

(Bloomberg)

Here’s a simple line chart that captures Wednesday’s surge and Thursday’s fade.

(Bloomberg)

Again, the quick fade in USDJPY suggests the bounce off the bear market in the Nikkei might prove short-lived.

(Bloomberg)

In any case, Trump is back in Washington after a brief jaunt through the Mideast and Europe to visit the troops (who are now leaderless thanks to the Mattis resignation), which means he’ll probably be back on Twitter. Steel (slat) yourself.

Oh, one more thing. China’s industrial profits fell for the first time in three years in November.

(Bloomberg)