Markets Are Going Lower

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Enter your email address and zip code to set up customized email alerts.You have successfully emailed the post. It's a fairly quiet day.

The big news so far is that the Bank of Japan, at its meeting, declined to take any further stimulus measures for now.

Japan ended down 1.45%.

Other markets are falling as well. US futures are modestly lower, while Italy is down by 0.75%, France is off by 0.75%, and Germany is lower by 0.73%.

Shanghai remains closed for Holiday, but for a reflection of sentiment towards China (which came out with bad data over the weekend) the Aussie dollar continues to sink like a song, falling below 94 cents against the dollar.

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The Market Is Getting Pounded

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The Dow is off 151.

The S&P and the NASDAQ are both off about 1.2%.

This comes amid some serious weakness in Europe (Italy off 2.4%). Emerging markets are getting hammered.

Japan fell 1.5% after no more action from the Bank of Japan.

In general, ugly day on pretty much every front.

For a good background on the factors driving the market lower, see Mohamed El-Erian on the sucking sounds that are getting louder and louder.

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Government Bonds Around The World Are Getting Destroyed Today

The sell-off in government bonds has gone completely global as concerns over Federal Reserve tapering of monetary stimulus infect the market.

Everywhere this morning, bond yields are up huge as investors dump sovereign debt.

In the United States, the 10-year yield is up 6 basis points to 2.26%, its highest level in over a year.

In the eurozone, French 10-year yields are up 5 basis points to 2.23%, Germany is up 3 basis points to 1.63%, Italy is up 15 basis points to 4.43%, and Spain is up 14 basis points to 4.471%.

Portuguese 10-year yields are up 37 basis points to 6.49%, and Greek yields are up 93 basis points to 10.28%.

Elsewhere in the developed world, the Japanese 10-year yield is up 5 basis points to 0.88%, Canada is up 5 basis points to 2.25%, Australia is up 11 basis points to 3.40%, and Switzerland is up 10 basis points to 0.84%.

Moving to emerging markets, Brazilian 10-year yields are up 14 basis points to 4.03% Mexico is up 14 basis points to 3.46%, Russia is up 15 basis points to 3.90%, and Turkey is up 31 basis points to 4.53%.

Treasuries and emerging market bonds have been selling off in recent sessions, but today, it definitely looks like the purge is accelerating.

Meanwhile, stocks are selling off globally as well. The Japanese Nikkei closed down 1.5% overnight following the latest Bank of Japan policy meeting.

In Europe, stocks have been heading lower all morning and most are trading near their lows of the day. Spain is down 2.7%, and Italy is down 1.7%. France is down 1.9%, and Germany is down 1.7%.

"Stocks across [Europe] are taking a shellacking to the tune of around 2% as rising German bund yields prompt accelerated losses for government bonds around the periphery," says Miller Tabak Chief Economic Strategist Miller Tabak in an email this morning. "Yields on Spanish and Italian debt are rising to the highest in six weeks. The loss of last week’s lows for equity markets is all too much to bear in most cases and the resilient tone appears to have been snapped like a twig."

Commodities are getting hit, too. WTI crude oil is down 1.3%, while Brent crude is down 1.5%, and NYMEX gasoline is down 1.3%., Gold is 1.2% lower, silver is down 1.5%, and platinum is down 1.3%. Agricultural commodities are all in the red with the exception of corn and soybeans, which are both flat.

In the United States, S&P 500 futures point to an open down 0.9%.

Meanwhile, the U.S. dollar is 1.9% lower against the Japanese yen, and the euro is down 0.1% against the dollar.

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The 3 Things That Are Causing Emerging Markets To Get Slammed

If you're just waking up, then you'll see that emerging markets are getting routed again.

Whether its Thai stocks, Brazilian bonds, or the South African Rand (its currency) investors are dumping it all.

This is a complex topic, and there are some idiosyncrasies that make each country different from another (of course), but there are 3 big themes.

The first one is the rise in US interest rates.

For the first time in awhile, real US 10-year interest rates (which is nominal interest rates adjusted for inflation) have turned positive.

FRED

More importantly than the fact that they've turned positive is the fact that there's just been a big spike in US real rates.

Money flows to where interest rates are high or rising. When real rates in the US were collapsing, that pushed a wall of liquidity out into the emerging world looking for yield. Now that things are reversing, that wall of liquidity is coming back, being sucked out of the emerging world, causing all of the ructions we're seeing.

The next factor is the slowdown in China. Many emerging markets are in some way levered to exports to China.

The China slowdown is one of the big stories of the year (confirmed with weak data over the weekend) and so this continues apace.

And then finally, there's the commodity slowdown, which is related to the China slowdown.

A lot of emerging markets are commodity players.

As you can see, it's been a rough several months for commodity prices (as the generic chart of the CRB commodity index shows below) and this takes a toll on these economies.

There are many more stories in all of this, but these are the big themes to watch.

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Emerging Markets In Asia Got Routed Last Night

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The big story in global markets is the overall rout in emerging markets.

Currencies have been getting slammed. Government bonds prices in local currencies have been getting worked. And equities have really stunk.

Last night was particularly bad for emerging Asia.

A few of the ugly points on the scoreboard.

Thailand fell 4.5%.

Jakarta lost 3.9%.

The Philippines lost 4.6%.

Meanwhile, India is down another 1%, as the Rupee remains near all-time lows against the dollar.

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Indian Rupee Hits Record Low Against Dollar

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The Indian rupee plunged to a record low of 58.98 per dollar on Tuesday.

The Reserve Bank of India is reported to have intervened and sold U.S. dollars to stem the rupee's decline.

The rupee has fallen about 5.6% against the dollar in the past month.

This is part of the overall selloff in everything related to emerging markets.

But in a report out last week, Deutsche Bank's Taimur Baig and Kaushik Das wrote that the rupee will rally against the greenback in the second half of the year. 

"Four times since 2008 there have been instances of fears about the rupee-dollar exchange rate’s disorderly movement," Baig and Das write. "Each time, the episodes were triggered by the rupee heading toward another all-time low against the USD."

In 2008 and 2013 the rupee's depreciated along with other global currencies, while in 2011 and 2012 they were driven by India's "own vulnerabilities."

They base this call on 5 key things 1. Inflation is declining. 2. The current account deficit is "likely to correct substantially." 3. The outlook for inflows is positive. 4. Global risk aversion is likely to ease off. 5. "The rupee is appropriately valued, with both the real and nominal effective exchange rates having corrected considerably in recent years."

Here's a look at how the rupee has traded against the dollar in the past month:

Google Finance

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