USDJPY collapsed. That’s raised concerns about global growth and dragged stocks lower overnight as traders again wondered about the path of global growth.
At the close the Dow was 0.98% lower and the S&P 500 dipped 1.2%. In Europe, French and German stocks were around 1% lower while in London prices fell 0.4%.
The wash up is that it looks like the rally of the past two days will be wiped away when the ASX200 opens this morning. June futures are 0.9%, 46 points, lower this morning at 4,899.
On forex markets, beside the collapse in the USDJPY it has been an overall night of US dollar strength which has knocked the Aussie dollar back to 75 cents, the pound back to 1.4055 and eased the euro a little lower to 1.1374.
On commodities, crude was lower but copper and gold were the big movers, falling 3% and rising 1.5% respectively. That move in itself is a neat microcosm of what’s driving traders. Worries about growth in terms of copper and fear about the future when it comes to gold’s rally.
Here’s the scoreboard (7.10am):
- Dow: 17,541, -178 (-0.98%)
- S&P 500: 2,042, -25 (-1.2%)
- SPI200 Futures (June): 4,898, -46 (-1.0%)
- AUDUSD: 0.7504, 0.0095 (-1.25%)
Now, the Top Stories
1. The big move in the yen knocked stocks because it is underlining the big worry for markets this year – central banker impotence. The yen has surged this week pushing USDJPY down to a low of 107.71 – the lowest level since October 2014. That’s despite the Bank of Japan taking rates into negative territory earlier this year, a reasonably weak economic and inflation outlook for Japan and rates across the bond curve at all time lows. These factors would usually coincide with a weaker, not stronger yen. So in many ways, yen strength is hard to fathom.
But the overwhelming narrative this morning on the financial airwaves and in reports I’m reading is that the yen is just an indication that markets are losing faith in central banks’ ability to get their economies moving and that as a result, concerns about the global growth outlook are front and centre once again. Of course, it’s not as simple as that and it is certainly more nuanced depending on the country and central bank you are talking about. But the reality is there are precious little signs that the global economy is doing anything but slipping.
It’s a take that was summed up nicely in a Bloomberg article this morning which likened central bankers to the little engine that could. Actually couldn’t, says Michael Schuman.
Central banks look more and more like the Engines That Couldn’t. Despite all their tireless persistence, the world economy remains stuck on the tracks, short of its ultimate destination — a real recovery. The value of the often highly unorthodox methods central banks have employed along the route will be hotly contested by economists for years, even decades. What’s beyond question is that the institutions just don’t possess the horsepower to rescue the global economy.
2. Here’s a sign the Bank of Japan might be setting up to intervene aggressively. Yesterday, wearing my AxiTrader hat, I wrote a piece saying the USDJPY was nearing my long held target in the 107/108 region and the chances of BoJ intervention were rising. It’s certainly not a consensus view that the BoJ or Japan’s Ministry of Finance (MoF) will intervene in forex markets with most of the research I’m reading talking about a move under 105 (currently 108.43) toward 100 neede for such a move.
But the FT reports this morning that Simon Derrick, an analyst at BNY Mellon, picked on something I noted yesterday in my piece. That is an “unnamed MoF official” used the words “one-sided” in discussing the big move in the yen. That’s important, Derrick says, because Japanese officials used those words ahead of intervention on September 15, 2010 and again ahead of intervention on August 4, 2011. He notes not only did the unnamed MoF official use the phrase yesterday but so to did chief cabinet secretary Yoshihide Suga.
“It is clear that the use of the phrase ‘one-sided’ has been an accurate indicator of the MoF’s willingness to authorise intervention by the BoJ if necessary. This therefore just leaves the question of what tactics they might use,” Derrick said.
3. It looks like the Australian stock market rally is already over. The ASX200 didn’t get all the way to the 5,000 I talked about yesterday but the high of 4984 wasn’t too far off before the reversal to end at 4964 up 0.37%. But that is going to already feel like a distant memory for traders when they get to their desks this morning after a tough night on global markets and another tumble on futures markets. With the SPI 200 June futures down 41 points, all of the last two days’ rally looks set to be wiped away.
Worse still, big falls in offshore banks, which dragged Citibank and Lloyds Bank down around 4%, saw Deutsche bank drop 3%, RBS down 2.4% and hitting banks more broadly is likely to weigh on the local banking sector again as well. Add in falls of a little less than 1% for BHP and Rio in London, crude oil’s fall of around the same amount, the collapse in copper of more than 3% and we look set for a pretty tough day’s trade.
4. China’s foreign reserves have stopped sliding. In another example that in markets when something becomes conventional wisdom there’s a chance the consensus is about to be wrong, Chinese reserve data released last night was not terrible. Indeed, not only did it not continue to collapse – as many China doom and gloom-sayers expected – but it rose marginally for the month.
Will Martin from BI UK reports “Chinese foreign exchange reserves finally stopped its slide in March, increasing by $10 billion to $3.212 trillion”. In the grand scheme of things, $10 billion here or there when you have $3.2 trillion in reserves is neither here nor there. But this is just another of many recent signs that China, and its authorities, have arrested the acute pessimism of early this year as the economy, and the currency – the yuan – have stabilised. It’s not exactly salad days in Beijing, but it’s not the poor house either.
5. Speaking of bears – Soc Gen’s Albert Edwards says a “tidal wave” is coming that will throw the US into recession. Earnings season in the US is coming up again soon but uber-bear Albert Edwards says his “fail-safe recession indicator” has turned to red which is a bad sign for earning season and the US economy.
“Whole economy profits never normally fall this deeply without a recession unfolding. And with the US corporate sector up to its eyes in debt, the one asset class to be avoided — even more so than the ridiculously overvalued equity market – is US corporate debt. The economy will surely be swept away by a tidal wave of corporate default,” Edwards wrote. Bob Bryan has more here.
6. Don’t tell Mario Draghi he’s impotent – a bunch of ECB speakers last night again reiterated they’ll do whatever it takes. Jason Wong, currency strategist at the BNZ in Wellington has a neat summary of the ECB speakers overnight.
“ECB board members Draghi, Praet and Constancio all spoke overnight and the ECB released minutes of its March meeting. The consistent theme was that they’d take whatever measures are required to boost growth and inflation. While direct financing of governments was ruled out, Draghi noted that he still had plenty of tools at his disposal. The minutes suggested that a larger rate cut and other policy measures had been considered at the last meeting.”
So it’s no surprise that the euro is lower this morning. But it is remarkable that the euro is only 0.25% lower and still not too far off its recent highs just above 1.14. Markets are losing faith in central bankers clearly.
Key data for the past 24 hours (with thanks to BNZ markets)
CH: Foreign reserves ($b), Mar: $3213 vs. $3196 exp.
You can catch me on Twitter.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
It’s difficult to determine what impact Telstra’s horror stretch of 4 major network outages in 2 months has had on its stock price. The stock is down but so are other major, yield stocks like the banks and supermarkets. The safe view at this stage is probably that this run of outages is a statistical quirk after an exceptionally long run with minimal problems
Telstra’s chart has arrived at the first of a couple of potential turning points. The stock is also trading on a multiple of around 15 times forward earnings and a dividend yield of 6%. Today looks like being a weak session for the overall stock market. However, if Telstra bottoms and begins to move away from either of these levels over coming days, it would set up for a rally from a chart point of view. That could be a significant indicator for the wider market.
The chart patterns are the classic “Gartley Pattern” where harmonic AB=CD swings coincide with Fibonacci retracement levels. Telstra bounced out of the first of these levels yesterday but would need to confirm this by beginning to make higher highs and higher lows with each daily candle. The second level is between around $5.06 and $5.09; give or take a bit.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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