Japan Stock Market Crash Leads To Global Sell Off

Tyler Durden's picture

Yesterday afternoon, following the rout in the US stock market, we made a spurious preview of the true main event:

We had no idea how right we would be because the second Japan opened, its bond futures market was halted on a circuit breaker as the 10 Year bond plunged to their lowest level since early 2012, hitting 1% and leading to massive Mark to Market losses for Japanese banks, as we also warned would happen. That was just the beginning, and suddenly the realization crept in that the plunging yen at this point is not only negative for banks, but for the entire stock market, leading to what until that point was a solid up session for the Nikkei to the first rumblings of a ris-off.

Shortly thereafter we got the distraction of the Chinese Mfg PMI which dropped into contraction territory for the first time since late 2012, and which set the mood decidedly risk-offish, although the real catalyst may have been a report on copper from Goldman's Roger Yan (which we will cover in depth shortly) and whose implications may be stunning and devastating and may have just popped the Chinese credit bubble (oh, btw, short copper).

And then all hell broke loose, with the Nikkei first rising solidly and then something snapping loud and clear, and sending the index crashing a massive 1,143 an intraday swing of 9% high to low, leading to an over 200 pips move lower in the USDJPY, and leading to a global risk off across the world. Looks like Mrs Watanabe's infatuation with the "get rich scheme" known as the stock market is once again over, and it is time to start from scratch for Kuroda and Goldman proxy company.

Perhaps best summarizing things in the centrally-planned world is the chart of the overnight USDJPY:

... and offsetting this is our old friend, gold, which once again reminded that when the entire centrally-planned construct implodes, as it was on the edge of doing so in Japan last night, it will be the only thing standing:

But don't worry: the short covering squeeze we warned about last night hasn't started yet. Not even close.

All of this is hardly the ringing endorsement that central-planners have
everything under control despite all time highs in stock markets around
the world.

Speaking of stock markets around the world, what goes up always comes down. This is just the start:

  • Nikkei: -7.32%
  • Hang Seng: -2.54%
  • DAX: -2.64%
  • FTSE 100: -1.9%
  • CAC 40: -2.3%
  • FTSE MIB: -2.56%

And so on. And this excludes the plethora of secondary side-effects as US traders walk in and realize their positions have been devastated overnight, and that unless the PPT steps in, the world is facing a tsunami of index margin calls.

A quick summary of what happened from DB's Jim Reid

So at the closing bell, the S&P 500 was 32pts off the highs at 1655 and the UST 10-year yield was 15bps above the lows at 2.0395%. These are big intraday moves. Indeed we haven't seen such ranges for the S&P 500 and Treasuries since 7th November and 14th September last year, respectively. In other markets the US dollar clearly benefited from the hawkish interpretation of the Fed headlines with Dollar index up nearly 1.2% above the lows while Gold fell over 3% from the
intraday highs to close at $1370/oz.

The FOMC minutes that came later was also viewed to be less dovish than the Fed commentary we’ve seen recently as the minutes noted that “a number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently stronger and sustained growth”. Markets clearly seized upon the hawkish tone from yesterday’s Fed headlines even though the Chairman himself at the Q&A session made it clear that a step to reduce the flow of purchases will not be an automatic mechanistic process of ending the program
but rather that any change in the flow of purchases would depend on incoming data and Fed’s assessment of the outlook. Whilst a slowing of QE is possible in a few months we can’t help to think that the Fed could be forced to restart its QE in a beggar-thy-neighbour environment where central banks in most part of the developed world are still largely on an easing bias in order to steel a share of the global GDP. We think QE or derivations thereof will be around for many years to come.

Back to markets, the overnight session is basically seeing a continuation of the risk-off flow that dominated the second half of the US session. Asian equities are mostly in the red and the latest Chinese flash PMI is clearly not helping. The HSBC May Flash PMI for China fell to a 7-month low of 49.6 versus a final April reading of 50.4. The May print was not only the first sub-50 print in 7 months but also extends the downward trend that we've seen since the end of Q1 as for this particular series the final reading for March, April and May were 51.6, 50.4 and 49.6 respectively. The rise in Treasury yields is also having an impact on Asian
rates markets which saw the 10-year part of the Australia and Japanese curve trace 8bp and 1bp higher. Asian and Australian credit spreads are also 2-4bp off overnight as markets digest the disappointing Chinese PMIs. Other Chinese growth related assets including copper (-2.2%) and AUDUSD (-0.6%) are also coming under selling pressure. The AUD in particular is at its lowest level versus the USD since Q3 2010.

Turning to the day ahead, the flash Euroarea manufacturing and service PMIs for May will be a focal point of the European session. The consensus is for a small 0.2  to 0.4pt improvement in PMIs across the Euroarea, France and Germany. The UK’s Q1 GDP revisions and Euroarea advance consumer confidence data are also worth watching. Across the Atlantic, the US preliminary PMI is out today together with April new home sales, the house price index for March and weekly jobless claims. Mario Draghi and the Fed’s Bullard will be speaking today in London – Draghi’s speech is scheduled towards the end of the US session.

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Smegley Wanxalot's picture

Paul Krugman says they didnt print enough

GetZeeGold's picture



Never skimp on the duct tape.

espirit's picture

Need moar fingers!

(to plug the dam)

Atlas_shrugging's picture

Hey as long as its Japan's fault and not Ben's, our President is OK. Therefore all is well.

NoDebt's picture

Yeah, just wait till they tell Obama about this!  (Sometime after the 2014 elections)

kliguy38's picture

mommy mommy.......but they told me it was a sure thing

jbvtme's picture

japan is wallowing in a nuclear cesspool.  their markets are the least of their problems

Fox Moulder's picture

Need moar PRINT buttons!!!1!

NipponMarketBlog's picture



Imagine a large room (Japanese equities) with a single door (the Tokyo Stock Exchange), through which a small number of people (investors) trickles in every day in an orderly fashion. After 8 months all of the investors in the room suddenly and simultaneously perceive a reason to exit the room, and when that happens the single door through which they came in simply isn't big enough to accommodate all of them in an orderly fashion.

In other words – in terms of market liquidity, the Japanese equity market simply is not deep enough to handle outflows on that scale.



jubber's picture

Big POMO rampfest underway...however nothing tomorrow lets see what happens after it's finished

espirit's picture

Love them Tweets.

fonzannoon's picture

I see S&P futures down like 12 with POMO today. Meh.

espirit's picture

Sooo... selloff Thursdays now?

Devotional's picture

what are the consequences of this jam?

koaj's picture


Devotional's picture

How much bloody paper can they print ffs???

GetZeeGold's picture



Got plenty of paper....it's just that we ran out of ink.


Who could have seen it coming?

Jam Akin's picture

Was in Japan recently. Had the feel of a minor drug fuelled binge. The hangover is gonna be a bitch.

terryfuckwit's picture

bitcoin, gold and silver bitchez

DavidC's picture

Now I'm really confused. There's a biggish POMO today, the Hilsenrath piece and FOMC minutes didn't explcitly say they WOULD start tapering in June, only hinted (as usual)...and we've had this BIG sell off overnight.

Now what?!


Jayda1850's picture

now what?

The market rallies to finish green for the day like nothing ever happened. nothing to see hear move along and buy moar stawks!

q99x2's picture

This is like trying to prove God to someone that doesn't believe. They will make fun of you until they are dead.

greatbeard's picture

> > is like trying to prove God

You can't "prove" god, simply enough.  If  they are making fun of you, it's for a reason.  Faith is a personal thing you need not push on others.

They trynna catch me ridin dirty's picture

On the contrary, it's quite possible to prove the existence of God through elementary logic and reason.

Those who believe that the structure of the atom, the coordinated revolution of the planets, the observable and predictable laws of the universe, etc., all somehow came to be randomly are the ones who are running off of faith. Not those of us who have a grasp of the basic logic that the Greeks already understood over 2k years ago (it is logically impossible for order to come to be randomly).

Now WHO you believe God to be, THAT'S we're "faith" comes into play.

MachoMan's picture

I will always make fun of people who put money into a collection plate solely in return for verbal promises of gain in the afterlife.  Not sure about you, but I know a sales pitch when I hear one.

fonzannoon's picture

This looks like hot garbage. Buy Stawks sell gold. please disburse. nothing to see here.

fonzannoon's picture

we are going to open UP

Antifederalist's picture


Can't scare the sheep.

Nothing to see here folks......

SmallerGovNow2's picture

Dow down almost one hundred as this is typed....

MachoMan's picture

if by "open UP" you mean goatse butt, then yes...

spankfish's picture

If this were a broadway play, Global Melt Down, a man would enter from stage right.

His first line:  Time to pay up bitchez.

firstdivision's picture

I see TPTB switched on the buying algos, seems to have started in EUR, then copper, now equities.

NoDebt's picture

Prediction for this afternoon:  Maria Bartiromo says "we're well off the morning lows."


HeliBen's picture

Followed by out of the blue call ins from Tepper and Buffet.

Bangin7GramRocks's picture

Lets see. Should we invent more money or watch economies crumble around the world? I think we will invent more money. Problem solved!

NaiLib's picture

Bullard already out with damage control...

q99x2's picture

Send me more money and I'll get the economy going again.

Dollar Bill Hiccup's picture

Hedge funds and fast monies not wanting to play musical chairs in Japan ...

And  zoop! 7% looks like a blip on that chart, at any rate.

Let's see some follow thru.

PPT will only allow for a semblance of correction.

But volatility could be the new black this summer.

o2sd's picture

I can't hardly wait to read Roger Yan's copper report. Talk about a cliffhanger. It's good to know that at least someone believes in fundamental indicators.


chindit13's picture

Back when Japan thought a strong currency wasn't to be feared, albeit when the yen was the carry trade currency of choice, there was a one or two day period (in 1999?) when JPYUSD moved from 140 to 118.  The Japanese may prefer this time that the carry traders hang around, but considering how many HFs have been wildly short JPY in all its crosses, history comes to mind.  Long weekend coming?

Dead Canary's picture

There was a Mark printed in Wiemar Germany for a time that was blank on the back. It seems, the Government had literally drained the country of ink and had to import moar from outside the country.

Don't know what made me think of that.

rsnoble's picture

Apparently the conditioning has worked...........a -90 point drop on a 15k+ market that hasn't corrected for like ever is a rout???  I wouldn't even blink at a 2 or 300 pt loss. 

tuttisaluti's picture

"we can fix that in a nano second or two"

horot's picture

Crash and burrnnn bitchezz.

Yen Cross's picture

    All hail the "Plunge Protection Team". lol

Manipuflation's picture

"we made a spurious preview of the true main event"

Would be much more succinctly stated as:

"we made a prescient preview of the true main event"


That you did.  Good call.