Stocks Crunched, Time to Worry?

Thursday was one of those trading days where analysts struggle for answers as fear takes over. We're comforted that bonds and FX didn't show anywhere near the level of fear as stocks. The Nikkei closed at a 7-year high on Thurs and a vast slate of data is coming up in the day ahead. The latest Premium trades include AUDUSD, 1 of which is in progress.

There wasn't a clear catalyst for the risk-off trade on Thursday. Analysts stretched in pointing at talk of Russian sanctions and comments from the Fed's Fisher. There were rumors of a high-yield hedge fund forced to liquidate but there are always rumors.

We continue to focus on China. Rumors that PBOC leader Zhou haven't been beaten back and talk about infighting in Beijing and the PBOC continues so we suspect there is some truth to this. Our friends at MNI are especially well-connected with their coverage.

In the short-term, who replaces Zhou and why is less important than the event of change itself. Change creates uncertainty and that's negative for risk trades and commodity currencies. So it's no surprise that the antipodeans were major laggards Thursday.

At the same time, Wheeler delivered a master class in jawboning. His unscheduled statement didn't say anything new but it was timed to break the March lows and send the kiwi to the lowest of the year. Jawboning works best when it's going with the momentum and the 2% fall in NZD/USD was more evidence.

The fall was even steep in NZD/JPY and that's where the focus will remain in the hours ahead. The main event is CPI at 2330 GMT. The consensus is for headline CPI up 3.3% but 1.7 pp of that is from the consumption tax hike. If the numbers are soft it could move BOJ action up the agenda.

Also keep an eye on the Nikkei, it hit a marginal 7-year high on Thursday but could be vulnerable to a reversal after the latest round of fears.