Dow Futures Crash 700 Points as Markets Brace for Another Liquidity Crisis

Futures on the Dow and broader U.S. stock market tumbled Wednesday night, as demand for dollars pushed the greenback to multi-year highs.
Posted in: Markets
Published:
March 19, 2020 2:58 AM UTC
  • Dow futures tumbled more than 700 points Wednesday night, pointing to another volatile start to trading in New York.
  • The U.S. dollar index broke 100.00 for the first time in almost three years. The fastest bear market in history shows no signs of abating anytime soon. In the near term, this means an even stronger dollar.
  • The strength of the greenback proves once again that cash is king in times of crisis. Unfortunately, this could stoke another liquidity crisis – in foreign exchange markets, no less.

U.S. stock futures plunged in overnight trading Wednesday, as cash once again proved to be the ultimate safe haven in times of crisis.

As investors dumped everything from stocks to Treasurys and even gold, the U.S. dollar soared to its highest level in three years.

Dow Futures Point to Somber Thursday Open

Futures on all three major U.S. stock indexes traded lower Wednesday night. Dow futures plunged by as much as 703 points, pointing to a grim start to Thursday trading.

At the current pace, the Dow Jones Industrial Average is set to open at more than three-year lows once New York trading begins.

The Dow Jones Industrial Average is on track to erase all of President Trump’s gains. | Chart: Yahoo Finance

S&P 500 futures fell 3.3%. Nasdaq 100 futures were off by 2.4%.

U.S. Dollar Index Soars

As The Wall Street Journal recently reported, markets are entering a phase “where cash is all that matters.”

Nothing was off-limits during Wednesday’s market selloff, as gold, stocks and Treasurys plunged. This massive liquidity event has been ongoing for the better part of a month and has even dragged down non-correlated assets like bitcoin.

The U.S. dollar index (DXY), which measures the performance of the greenback against a basket of six peers, has appreciated 5.1% this year.

After crashing in early March, DXY has gained 6.7% over the past seven trading sessions. It now sits at 101.30, the highest since March 2017.

The U.S. dollar hasn’t been spared volatility, but its trajectory has been higher since the start of the year. | Chart: Bloomberg

The all-encompassing selloff affecting equity, credit and commodity markets is a clear sign there are very few places to hide in today’s bear market. In the process, the U.S. dollar has surged against all currencies, creating a potential liquidity crisis in the FX market.

That’s because nobody in the foreign exchange world wants to bet against the greenback ahead of a potential lockdown in the United Kingdom – the world’s biggest FX trading hub.

Pound sterling fell as much as 5% on Wednesday, en route to its lowest level since 1985.

Several analysts believe London’s trading floors are about to close as the British government enacts stricter controls to combat coronavirus. U.K. Prime Minister Boris Johnson has been following Europe’s lead by increasing restrictions on the local population.

Josiah Wilmoth edited this article for CCN.com. If you see a breach of our Code of Ethics or Rights and Duties of the Editor or find a factual, spelling, or grammar error, please contact us.

Last modified: March 19, 2020 4:05 AM UTC

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Sam Bourgi @forgeforth87

Financial Editor of CCN.com, Sam Bourgi has spent the past decade focused on economics, markets, and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE, Yahoo Finance, and Forbes. Sam is based in Ontario, Canada and can be contacted at sam.bourgi@ccn.com or at LinkedIn.