In another night of fear and panic stocks around the globe have been sold heavily, the Aussie dollar is under 70 cents, gold is rallying, bond rates are lower and crude oil is down but off its lows.
Of course it all started in China yesterday after the market was closed after less than 15 minutes trading once stocks hit the 7% down limit. That, and the continued weakness in the Chinese yuan set off a wave of risk aversion in Asia which then went global overnight.
The Dow closed down almost 400 points (2.2%), the S&P 500 is under 1,950 with a loss of around 2% while stocks in Europe were down by a similar amount. That weakness has knocked the ASX futures down another 1.3% overnight after the physical market lost 2.3% in trade yesterday.
On forex markets, the Aussie is the worst performer of the G10 as traders hammer it on China concerns and because that’s what they do when fear grips markets. The euro has been the big winner as money goes home. Likewise, the yen is playing its usual safe haven role.
Gold has also finally caught a bid and is back above $1100 an ounce for the first time since early November.
So, the scoreboard (8.10am):
- Dow: 16,514, -392 (-2.32%)
- S&P 500: 1,948, -42 (2.12%)
- SPI200 Futures (March): 4896, -62 (1.3%)
- AUDUSD: 0.6998, -0.0070 (1%)
And now the top stories:
1. How far will the Chinese stock market fall today? Sensible news broke overnight that China’s stock market won’t be halted anymore, at least for now. That means no circuit breaker, no early close to the market, but crucially, no rush for the exits. That means that while stocks might continue to be pressured, Chinese investors won’t need to try to get their sell orders in before the magic number is hit. It could mean calmer markets. Myles Udland from BI US has more.
2. Can Australian stocks phone a friend today? The biggest question I have about this week’s global panic, which has pulled forward so much of the negativity I was expecting to wash through markets in the first quarter, not the first week, of 2016, is whether this is the pessimistic crescendo we need for a low.
Longer term, the answer is probably no. But in the short term it’s worth noting that the ASX futures, which trade all night and so pick up the worst and best of global market moves, are holding support. That means at these levels, traders might be thinking about whether to take back some shorts (sold positions). Here’s the level they are watching – 4877 on the March SPI200 which is sitting at 4,903 this morning.
3. The Australian dollar is back below 70 cents. If there is one trading rule you can take to the bank in global finance it is when fear and panic are in the markets the Aussie dollar goes down. That simple axiom has made forex traders so much money over the years and it’s how this week has played out. Sitting at 0.6995 this morning, the Aussie is down 280 points, 3.84%, so far this week. That’s an incredibly weak start to the year, the worst since the float in 1983. But the second best trading rule is, when sentiment snaps back, the Aussie will roar. So I’m getting ready to buy if Chinese stocks can stabilise.
4. If forex markets had their way, the Chinese currency would be in freefall. Even though the Chinese central bank letting the yuan slide this week is one of the primary culprits in the maelstrom that has engulfed markets, it could have been much worse. That reality is revealed in data from China released overnight which showed its reserves position fell $108 billion in December. Linette Lopez from BI US has more.
Key here is China is trying to keep the yuan fall orderly and also not spook investors and increase capital flight from the country. It’s the way we used to do things in Australia before the float in 1983. If China ran an Australian-style free float, the yuan would be in freefall. While China might not be winning many friends with its approach at the moment, they are doing their best with a very old set of policy tools.
5. Crude oil is tanking again and that is a bad sign for stocks. Crude is still an important input in the global economy. The big fall acts like a tax cut, so it helps consumption and supports growth. That is if the refiners pass on the fall to the petrol pump.
But as Sam Ro points out, crude is also a very important input into stock market pricing. He highlights that in the bellwether US market, the fall has undermined earning expectations for the S&P 500. Analysts need to recalibrate their expectations and will likely start to downgrade expectations for where stock markets will end 2016.
Sam’s also has a neat little piece on what a worst-case scenario in China means for stocks.
6. George Soros says this is the 2008 financial crisis all over again. The man who broke the Bank of England knows a thing or two about markets and has a dire warning for traders. “I would say it amounts to a crisis. When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008.”
In many ways though, that wasn’t the telling comment. Rather, Soros saying “China has a major adjustment problem,” is the more telling remark. Panics pass. But China’s adjustment is necessary for its economic and political stability. It does have a problem and that means it will remain a centre of volatility for global markets across this year, and perhaps next.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Newcrest Mining (NCM.ASX)
Gold is pushing up through resistance at $1100 and the Aussie Dollar is falling at the same time. That’s a good combination for Australian gold miners. The gold sector looks like being a small bright spot on a black day for the wider stock market.
Newcrest has again bounced off the support of a trend channel that is the dominant feature of this chart at the moment.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC