Monday morning Asia has started poorly with the Aussie dollar already down 0.33% at 0.6844.
That’s just above Friday’s low of 0.6828, the lowest level since 2009. The Canadian dollar is also under pressure, having lost 0.43% against the US dollar, while the Kiwi is down 0.67%.
The moves in forex markets, where these three currencies are proxies for global growth, risk appetite, China and oil, suggest that we could be in for a big day of negativity across Asian markets today with stocks under intense pressure.
US markets are closed for the Martin Luther King holiday tonight so there is a day and a half of clear air before US traders re-enter the fray. That sets up two scenarios. Little trade while investors wait for the US market to guide them again. Or, more likely, an air pocket in Asia today.
Key to the weakness is crude oil’s crash of more than 5% to finish below $30 a barrel for the first time in more than a decade and the US having another terrible session Friday. The big three indexes fell more than 2% with similar moves in Europe. The Dow’s fall of 391 points got most of the headlines but it’s the broad nature of the selling that suggests traders are in the grip of an acute bout of fear.
Locally on the ASX, the market looks set to open down around 2% after the SPI 200 March futures contract finished the week off 87 points, 1.8%, at 4,745.
Fear could be the most available emotion for traders today.
Here’s the scoreboard (8am):
- Dow: 15,988, -391 (-2.39%)
- S&P 500: 1,880, -42 (-2.16%)
- SPI200 Futures (March): 4,745, -87 (1.8%)
- AUDUSD: 0.6836, -0.0031 (0.45%)
And now the top stories:
1. These are the 5 things that need to happen for stocks to settle down. Where is the bottom, when will the panic end? That’s an open question but NYSE floor governor Rich Barry has set out 5 things that need to happen before sentiment can turn.
It’s one heck of a wish list including China, oil, the Fed, corporate earnings and economic growth. Myles Udland has all the details here.
2. ‘Greater fools’ drove the market higher and that means 2016’s rout could intensify. In 2014 and 2015, when the types of market funks we are now experiencing occurred, something happened to pull markets back from the brink and keep the uptrend in stocks and risk appetite intact.
But 2016 feels different. Citi analyst Matt King reckons he knows why. Central bank influence is waning and the “greater fool” buying that drove asset prices higher is about to unwind. Here’s why.
3. But Australian stock holders can stop worrying about the sell off. Equity strategists are an unusually positive bunch. With an eye to history, and the fact that stock prices tend to move upwards from left to right on a price chart through time, more often than not they are predicting prices to rise in the year ahead. That seems to be the case for Australian stocks at the moment with a raft of analysts looking for a rebound.
The AFR reports that AMP’s Shane Oliver has lowered his end of year forecast from 5,700 to 5,500 but is still smiling. Likewise, CommSec chief economist Craig James has 5.500 to 5,700 pencilled in. But if Macquarie, Citigroup and Credit Suisse are right this week, perhaps even today’s expected carnage on the ASX could be the buy of a lifetime. That’s because the three banks are forecasting a return to the 5,900 to 6,000 zone. In the case of the 6,000 target that’s fully 26% above the 4,745 level that the March SPI 200 futures closed at on Saturday morning.
4. Crude oil’s below $30 a barrel… how low can it go? The Chinese stock market is stabilising, as is its currency, the yuan, as authorities try to drive volatility out of the market. No such luck though for oil and that’s a large part of why markets globally are in such a funk. Over the past week, crude has fallen below GFC lows, below $30 a barrel, and is now down 18% in just the past month.
There are good reasons for that. Not least is continued over-supply and the end of sanctions on Iran as the nuclear deal comes into place. But how low can it go and what impact will this have on inflation and stock market valuations?
5. The No. 1 fear for investors a month ago has now become reality. Crude’s fall is important for earnings estimates as much as it is a reflection of so many other concerns in markets. That’s important, reports BI US deputy editor Sam Ro, with the crash in crude feeding back into expectations about earnings which then in turn is weighing on stocks.
6. It’s a week chock a block full of important Chinese and global inflation data. There is not much respite for traders at the moment from the volatility in markets. Hopefully you had a restfull weekend because as we begin again it could be another huge week on markets. Here’s my diary of the week that was and the huge week we have ahead of us.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
CSL benefits from a weaker Aussie but has no direct exposure to weak commodity prices. This is a combination that may fare relatively well in the current selling storm.
However, if you are hoping for a decent pull back to create a value buying opportunity the CSL chart might provide a clue that this is getting underway. There is good support between about $99.50 and $101. This comes in the form of a head and shoulders neck line, the 50 day moving average and 38.2% Fibonacci retracement level. A clear break below that could imply a deeper correction, perhaps back to around $92 where there is long term trend line support and the 78.6% retracement level.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC