The Tech sector is in the middle of a technical correction as US equities got hammered overnight. The S&P fell 2.8% with tech stocks leading the nosedive. NASDAQ fell a further 4.1% and is now in “technical correction” territory with a 10% decline since 2 September.

Even with that, the index remains at the loftiest levels 60% higher than its lows in March.

Oil prices fell an eyewatering 7.6% to a three-month low. Monday was the end of the “driving season” in the US, but with oil traders always looking over their shoulders at the Covid-19 case count curve, the rising virus cases may also raise questions about demand’s durability.

At a minimum, the optimism balloon floated by vaccine hopes has sprung a sizable leak.

I think many folks were pinning hopes that the US dollar rally and NASDAQ correction was probably done. Obviously, that was wrong.

The slump in the British Pound and crude oil got the US dollar rolling again. These days the stronger US dollar has been acting like a wrecking ball across many assets, leaving a swath of carnage in its wake.

In Asia, stocks look set to slide after ponderous losses on Wall Street sparked another wave of tech sector declines. Simultaneously, energy stocks tracked a sharp drop in crude prices amid signs of faltering demand.

Indeed, we are bearing witness to the most unvirtuous circle of events in some time as everyone seems to be running for cover, but sadly for the weaker Tech longs, most shelters are full after last weeks beat down.

Short-seller revenge

There is that not so small thing called “short-seller revenge”. When word got out that it is one man’s market that is leading the call options charge, it gave the short sellers a well-defined target to fire lead while running roughshod over retail investors.

When you step up and try to play with the big boys, Financial Markets can provide the most savage in reality checks pretty quickly.

Although the equities’ weakness and, in particular, the tech sector is making many headlines, do not underestimate the Brexit impact. Judging by the way GBP assets are trading on Tuesday, investors were far too complacent to the “no-deal” tail risk.

US Dollar gains strength

The US dollar is likely to take influence from both equity markets and relative data performance via growth differential. Weaker US equities have been helpful to the USD of late, suggesting the USD can still hold on to some of its safe-haven appeals despite the political stench emanating in Washington.

Euro vs USD

Weaker US data still poses a cyclical threat to the USD, which will ultimately be the dollar’s key. These competing forces may see EURUSD stay range-bound near term, (1.17-1.19), although the breach of trend line support close to 1.18 has triggered some stops and now provides the new bridge to cross for EURUSD bulls.

If the EURUSD can muster up a rally and move back above 1.1800, that will be great for global risk sentiment as the EURUSD has been moving the risk dial pretty convincingly these days.

Pound under pressure on Brexit woes (again?)

I am astonished that we are still talking about Brexit, four years, two months, and seventeen days after the referendum. There is still no deal or even much evidence of good faith negotiation. It is beyond stupid at this point and the rhythmic sound of traders bashing their heads against their keyboards suggests they too were far too complacent as the Pound remains in a world of hurt.

Also, GBPUSD has followed the month-end pattern perfectly again. As discussed, there is a pattern in months where the SPX rallies significantly: GBPUSD rallies into month-end as real money rebalancing dominates, and then when hedging stall, the pair mean reverts. This month has followed that pattern entirely only with a much larger amplitude due to Brexit angst.

The Ringgit feels the pressure

Despite strong bond inflows, the ringgit gave way to toxic global risk sentiment driven by the US tech sell-off, and simultaneously the gnarly fall in oil prices has clouded the bullish viewfinder. And to round out the negative scrim, the US shift to manufacturing internalisation will likely weigh on crucial export sectors with strong betas to the US economy, such as Malaysia’s huge electrical machinery manufacturing industries.

Gold still under $2000

Lower US yields save the day for gold, but gold action is telling us something the bulls do not want to hear.

Spot gold fell for the fourth time in five sessions Tuesday and has flirted but has remained above $1,900 an ounce. The metal, which has slumped more than 6% since its record high in early August, pressed the lower edges of its trading envelope but rebounded, suggesting a reversion to its mean may be in play.

I suspect what gold price action is telling investors right now is not so much what is known (lower-for -longer). Instead, and for all the noise made around Fed Chair Powell’s Jackson Hole speech, the market is questioning the Fed’s ability to generate inflation rather than its resolve to hold rates down.

Gold was broadly on the defensive in Asian and European trading, hitting a low shortly after the US opening. Gold’s initial weakness can largely be chalked up to USD firmness.

Gold losses were pillowed by rising US-Sino tensions, following President Trump’s Labor Day speech in which he focused on the need to return manufacturing jobs to the US.

International markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp