Volatility has picked up across markets, according to the CBOE Market Volatility Index <.VIX>, the bond market’s ICE BofA Merrill Lynch MOVE Index <.MOVE> and currency market’s Deutschebank dollar currency vol index <.DBCVIX>.
It doesn’t help that the Bank of Japan and the Fed hold meetings almost simultaneously next week. China’s economy is slowing faster than economists and Beijing anticipated, with spillover into commodity markets and across Asia.
The Japanese yen rallied for a fourth straight session against the dollar on Thursday, hitting a 2-1/2-month high, as investors unwound their long-running bets against the currency ahead of those meetings. Dollar/yen was at 153.845 in late trade, just about flat.
Chinese stocks fell , iron ore and oil prices were shaky after the country’s central bank sprang a surprise cut in longer-term interest rates, only stoking further worries about the world’s second-largest economy and Asian markets overall.
The Shanghai Composite index <.SSEC> closed at the lowest level since Feb. 19. MSCI’s broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> closed 1.00% lower, while Japan’s Nikkei <.N225> is coming off a 3.28% tumble.
“In China it’s not really a function of the cost of capital, it’s a function of demand (for) capital which is causing economic weakness over there, which is why you had a really tepid response from Chinese equities,” said Jeff Schulze, Head of economic and market strategy ClearBridge Investments.
