Singapore: The yen surged on Thursday through key technical levels as heightened worries about the global economy pushed investors to safe haven-assets in moves exacerbated by thin holiday volumes. Market participants fled to the safety of the highly liquid Japanese yen which rose 1 percent versus the dollar on Thursday. In early Asian trade, the dollar tumbled to an intra-day low of 104.96 yen, its lowest since March 2018. The spike in risk aversion triggered massive stop-loss flows from investors who had held short positions on the yen for months. A lack of liquidity, with Japan still on holiday after the New Year, added to the sharp surge. Market participants described the move as a “flash crash" in major currencies against the yen, driven primarily by technical, not fundamental, factors.

The Australian dollar, often considered a gauge of global risk appetite, fell to its lowest level since 2009 in early Asian trade to an intra-day low of $0.6776. The Aussie dollar last traded at $0.6931, down 0.74 percent. Against the yen, the Aussie dollar fell 1.8 percent to 74.67.

Market participants described the move as a “flash crash" in major currencies against the yen, driven primarily by technical, not fundamental, factors. Here are the key factors that triggered the “flash crash" in FX:

Apple earnings outlook

Apple Inc on Wednesday took the rare step of cutting its quarterly sales forecast, with Chief Executive Tim Cook blaming slowing iPhone sales in China. Apple on Wednesday lowered its forecast to $84 billion in revenue for its fiscal first quarter ended Dec. 29, below analysts’ estimate of $91.5 billion, according to IBES data from Refinitiv. Apple originally forecast revenue of between $89 billion and $93 billion. Wednesday was the first time that Apple issued a warning on its revenue guidance ahead of releasing quarterly results since the iPhone was launched in 2007.

“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China," Cook said in a letter to investors. “In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad."

The revenue cut for the just-ended quarter raises questions about whether Apple, the face of American business in many parts of the world, is being punished by Chinese officials or consumers in favour of local rivals such as Huawei Technology, whose pricey smart phones compete with the iPhone and which has been under discussion by the Trump administration for a possible sales ban over suggestions that its telecommunications equipment could be used to spy on Americans.

Cook told CNBC that Apple products have not been targeted by the Chinese government, though some consumers may have elected not to buy an iPhone or other Apple device because it is an American company.

China slowdown

China’s factory activity contracted for the first time in over two years in December, highlighting the challenges facing Beijing as it seeks to end a bruising trade war with Washington and reduce the risk of a sharper economic slowdown in 2019. The official PMI—the first snapshot of China’s economy each month—fell to 49.4 in December, below the 50-point level that separates growth from contraction, a National Bureau of Statistics (NBS) survey showed on Monday. Largely dovetailing with the official survey, a private survey showed China’s factory activity contracted for the first time in 19 months in December as domestic and export orders continued to weaken.

A series of purchasing managers’ indexes for December released mostly showed declines or slowdowns in manufacturing factory activity across the region. China’s weakness spilled over to other Asian economies, with Malaysia’s manufacturing activity shrinking to its weakest pace of expansion since it launched the survey in 2012 and Taiwan contracting to its lowest since September 2015.

Tariffs war with the US is not the only drag on China’s economy. Beijing’s sustained drive to reduce debt risks in the economy has cooled the property market and curbed credit flows to the private sector. Meanwhile, the government’s intensified crackdown on pollution has dented industrial activity.

Other currencies

The dollar index was at 96.77, relatively unchanged from its previous close. However, analysts expect the dollar to come under pressure in coming months with diminishing prospects for U.S. central bank rate hikes in 2019, which has driven Treasury yields lower. The yield on U.S. 10-year treasuries fell to 2.63 percent, the lowest in nearly a year on Wednesday. Federal Reserve chairman Jerome Powell speaks in Atlanta on Jan. 4. Any acknowledgement that growth risks are building and financial conditions tightening is likely to be read by traders as a dovish policy signal.

Elsewhere, sterling fell 0.7 percent to $1.2516 on Thursday. The euro was down marginally at $1.1340. On Wednesday, the single currency fell 1 percent after data showed manufacturing activity contracted in Spain, France, Italy, and Germany.

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