What happened?
The market party has been raging all year and suddenly everyone has a hangover. The S&P 500 has fallen four days in a row and today the Nikkei is down 2%.
The pain is starting to bleed over to FX as well with AUD/USD on the backfoot in early Asia-Pacific trade. If it can clear 0.6388, that will be a new low since November.
When you zoom out at bonds and AUD/USD, you wonder if equities are living on borrowed time. April is supposed to be strong seasonally and that hasn't worked out while the seasonals turn in May. Fed cuts are evaporating and it looks like the market could break if Powell says "we may have to hike again".
AI is probably holding much of it together and that's justified but still prone to headline risk. The momentum in Nvidia has faded and if we don't get another quarter of sensational earnings, there could be a rush to the exits.
What will happen?
I think we will be ok. This is probably just a hiccup because the Fed and other central banks will cut and inflation will fall but I can certainly see both sides of the argument and it's looking like a key moment.
