Stocks in the US drifted lower after negative leads from Europe and most of Asia except Japan.
Energy stocks were the worst performer after WTI crude slipped back below $50 a barrel. That’s the strong performance from Bank of America and the fact that the overall positive tone of earnings reported during the day couldn’t keep stocks in the black might be communicating something about traders’ psychology right now.
Time will tell but the wash-up is that after spending most of the night in the red, the SPI 200 futures are up 3 points this morning. That’s not much of a lead for trade today – but it does perhaps convey some optimism yesterday’s big fall won’t be replicated.
On forex markets the US dollar lost a little ground which saw USDJPY fall, and allowed other pairs which were under pressure at one stage yesterday to recover. The Aussie remains bid and is at 0.7624 this morning.
In other markets, gold is up $5 an ounce, copper remains under pressure at $2.09 a pound and iron ore is higher again.
Here’s the scoreboard (8.23am):
- Dow: 18086 -52 (-0.29%)
- S&P 500: 2126 -6 (-0.3%)
- SPI 200 Futures (December): 5,372 +3 (+0.1%)
- AUDUSD: 0.7626 +0.0012 (+0.2%)
The top stories
1. The architect of the euro and the ECB says ‘the house of cards will collapse’. While such a view has always been, and remains, my base case, I never thought I’d hear Otmar Issing, a founding member of the executive board of the European Central Bank, say that the euro and ECB will just muddle through until the whole shebang collapses.
Jim Edwards has a really interesting piece here that anyone and everyone who trades needs to have a look at.
2. Complacency is poison for traders and markets and Citi is warning that only a ‘small trigger’ is needed for a big reversal of stocks. Thomas Colson reports in a note Monday, Citi argued investors around the world are getting complacent and, as a result, global markets face a bigger risk from “unexpected outcomes to expected events” than they do from hard-to-predict or unexpected events, known as “black swans”. This risk is because markets have an “embedded bias”, the bank said.
You don’t need to go any further than the Brexit vote.
Why are traders more complacent and why is volatility lower? Citi says we live in a “more certain” world than the past. Strange as that sounds given the year we have had in 2016, I think they are right.
3. Speaking of complacency, Albert Edwards might be right – the yuan is sliding again. Yesterday I highlighted that Soc Gen’s uber-bear Albert Edwards reckons there is too much focus on the pound and not enough on the slide in the yuan. So it’s worth noting David Scutt’s report that the slide is continuing and the yuan is now at another 6-year low and at risk of breaking the offshore high for USDCNH.
A break would be a huge move technically and psychologically for markets. It has to break first to get traders excited. But tomorrow’s data dump of Chinese GDP, retail sales, industrial production and urban investment is the perfect catalyst for the next big move.
4. The bears are lining up to sell the Aussie dollar. Last week the NAB’s currency strategy team said when the Aussie dollar breaks its current range, it will be to the downside. Then yesterday, David Scutt reported that Westpac’s chief economist Bill Evans says the AUDUSD will fall from the current 0.7620 to finish the year at 74 cents before dropping to 68 cents by the end of 2017.
Overnight, the folks over at Forexlive report that Credit Suisse has added its voice to the bearish chorus, making a sell AUDUSD play its trade of the week. They think the market has walked too far away from expectations of a November hike and say “we see a greater risk that marginal developments in fact surprise the market to the dovish rather than the hawkish side”.
We won’t have to wait long. RBA governor Lowe is up this morning with a speech on inflation and the economy.
5. Forget fossil fuels. This hedge fund legend is psyched about an ‘incomprehensible’ market opportunity. This is really interesting. It’s a story about one of the original modern day titans of the hedge fund industry Art Samberg and his excitement about and moves into the “clean energy sector”.
He’s invested in a fund called Tri Alpha Energy which made a major breakthrough last year, using plasma technology to control the fusion reaction needed to generate power. Samberg says “this will solve — truly solve the world’s problems. The way we’re doing it, there’s no radiation. There’s very low materials. It’s boron, which is scraped off the desert floor and hydrogen – heavy, heavy, heavy water.”
Fed vice chair Stanley Fischer explained overnight the bind central banks find themselves in. The weaker data in the US overnight helped US 10-year bonds rally from around 1.8% at one stage to finish at 1.74%. But that reversal was also aided by comments from Fischer which both seemed to suggest a rate rise is near but equally that the overall growth outlook for the US, and the globe is moribund.
Fischer said overnight “we are very close to our targets” of full employment and 2 per cent inflation. He added that low rates make the economy more vulnerable to adverse shocks but tempered that by saying there is no current threat to financial stability. But he again kept to the recent party line we’ve been hearing from the Fed that raising rates “is not that simple” given aging populations, weak demand, and low investment may have dragged down the globe’s potential growth rate.
You can see why Janet Yellen is floating a thought bubble about letting the economy run a little hot to change things up.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Crown Resorts (CWN: ASX)
News that Crown staff have been arrested in China creates doubts about the Company’s near term earnings and, perhaps more significantly, its longer term strategic direction. Chinese VIP customers are a key part of Crown’s growth strategy in casinos. At this stage it’s very hard to get a handle on whether this situation represents a short term problem or a medium term game changer.
Yesterday’s price action suggests the potential for more selling. The market broke below chart support and finished on its low. The slow stochastic in the box below the chart is also breaking below 50% suggesting plenty of scope for yesterday’s selling momentum to be extended if investor nerves are not calmed by good news pretty soon.
The next significant chart support looks to be around the 78.6% Fibonacci retracement and the December lows in the $10.50/$10.75 zone.
The bottom of the gap at $11.95 is now resistance and it would be hard to conclude that real confidence is returning until this is exceeded.
You can follow Ric on Twitter @ricspooner_CMC