Massive Risk-off Wave Hit Markets Thursday

Stocks bled

Equities were massacred yesterday and completely erased Wednesday's gains.On Thursday, the blue-chip Dow Jones Industrial Average dropped more than 1,000 points, or 3.1%, its worst daily loss since October 2020.

The Nasdaq Composite, heavily weighted in technology, dropped 5%, its most significant one-day percentage drop since June 2020 and the lowest close since November 2020.

The wide sell-off on Wall Street overnight weighed on investors' confidence, as markets worried that strong central bank tightening would be required to manage skyrocketing inflation, which would stifle economic growth.

USD benefits again

We're also witnessing the Dollar Index's momentum picking up again. The DXY posted its biggest one-day advance on Thursday since the COVID meltdown two years ago.

The dollar reached its strongest intraday level since 2002. In addition, the bullish Momentum indicator is at its highest level since 2015. This points to a possible breakthrough to new highs. If the dollar index successfully moves to the upside from the recent range, we may expect the dollar to strengthen further. In that case, stocks and commodities could face another bearish pressure. 

US labor market data ahead

Volatility is undoubtedly expected to continue as the US job market update for April is due later today. The non-farm payrolls are seen slowing slightly to 391,000 from 431,000 previously. The unemployment rate will likely improve somewhat to 3.5%. Wage growth is projected to remain near March levels, underperforming inflation by a lot. 

Furthermore, Canadian labor market data will be released as well. 

Lastly, John C. Williams, the Federal Reserve Bank of New York president and the voting FOMC member, will speak later today, possibly trying to sound dovish to calm down the markets.