– A huge crash in oil-dominated trade on Friday night with Nymex crude falling more than 10% or $7.70 a barrel to $65.99.
– This fall in energy is both a product of, and cause for, concern about the global economy and central bank policy.
– Of course part of the crude price crash is the Saudi decision to try to crunch shale oil producers and also a reflection of weak global demand for oil. Weak global demand on its own is a pre-cursor of disinflation and perhaps, in the current environment, it can mean deflation. But add in the big fall in oil and you get central banks, focussed on keeping inflation above zero, losing the battle, perhaps the war and with no monetary bullets left.
– The big, big, question is how can stocks – everywhere it seems except Australia – stay elevated if the globe is weakening and deflation is at risk of taking hold? Perhaps ebullience about the positive hit to growth weaker energy prices might allow?
– It makes it difficult for Santa to deliver his rally and you’ll notice that while the biggest loser of the night Friday was crude oil, the biggest gainer – the VIX – suggests a little nervousness over potential instability and volatility on futures markets.
– It’s a huge week of data and events this week culminating in non-farm payrolls Friday night so we’ll have a great read on sentiment by the close of the week.
-Looking back to Friday and US Stock Markets were quiet in post-Thanksgiving half-day trade with no data out.
- Dow Jones was flat at 17,828, close to 70 points off the early morning high however.
- Nasdaq up 0.10% to 4,792
- S&P 500 down 0.23% to 2,068, early morning strength then a drift into the mid day close.
– European Markets – had a strong close after a lacklustre start. European CPI printed 0.3% mom as ecpected for a YoY rate of 0.7% in November. German retails sales surprised printing 1.9% mom in October but Italian unemployment spiked to 13.2%!
- London(FTSE 100) down 0.01% to 6,723.
- Frankfurt (DAX) up 0.06% to 9,981 clawed back to the black in the last hour of trade.
- Paris (CAC) up 0.17% to 4,390, also with a big end of day spike.
- Milan (FTSEMIB) down 0.43% to 20,015, weighed down by unemployment
- Madrid (IBEX) up 0.40% to 10,771
– Locally the moves offshore have left the ASX SPI 200 futures for December off 44 points at 5294 bid and looking for a weak day’s trade. March was off 40 as well, but one thing which might counter what is a growing feeling of disquiet to all things Australian is the monster rally on iron ore Friday night withDecember 14 up $3.84 a tonne and Dec 2016 up $5.37. They are still way down on 12 months ago but that’s a solid rally.
– On Asian Bourses the Nikkei climbed after the inflation data dipped again fueling expectations that the BoJ will be easing again but there is some recognition that a weak Yen has it’s downside. Mish Shedlock had a note he picked up from Goldman Sachs saying that bankruptcy in Japan as a result of the weak Yen had risen.
- Tokyo (Nikkei Average) up 1.23% to 17,460 – inflation and Yen weakness buoy
- Hong Kong (Hang Seng Index) down 0.07% to 23,987 – a messy day
- Shanghai (Shanghai Composite Index) up 2.00% to 2,683 – another huge move after lunch and a rally of 7.89% over the week.
– On currency markets it has been an ugly open for the Aussie after the rejection of the gold buying plan in the Swiss referendum and it is down at 0.8450 in early Asian trade. Elsewhere the Euro closed at 1.2448 after former Bundesbank Vice-President and now ECB Governing Council member Sabine Lautenschlaeger on Friday strongly rebuffed calls for sovereign QE ahead of this week’s meeting, adding to the prospect of no further QE until at least Q1, the NAB reported this morning. The Yen is also weaker at 118.64, not far from the recent highs at 119 and GBP was under pressure at 1.5653.
– On commodity markets besides oil the other big news is falling gold ($1,167), silver crashed 6.4% to $15.36, and copper crashed 10 cents a pound to $2.86 a pound. Iron ore rallied and it will be interesting to see how much focus it gets in trade today.
– On the data front, AiG PMI and TD inflation are out in Australia today, but the highlight in our time zone is the HSBC PMI and any deviation, if there is one, from the flash PMI of a week or so back. The NBS PMI is also out and important as is the JMMA in Japan.
– The RBA’s commodity price index might garner more attention than usual given what it will say about the prices Australia is now receiving for its commodity basket. Tonight there is a raft of data in Europe in terms of PMIs and the ISM (Institute of Supply Management) in the US is also out.
And here’s Ric Spooner from CMC Markets with the Stock to Watch
Whether this high momentum commodity sell off continues will be a key question for traders in what looks like a busy week. The answer will determine if BHP holds chart support in the $30/31 zone.
This support is shown on the monthly chart below. Potential trend line support cut in around $31 but the market is likely to open well below that this morning. The July 2012 lows form the bottom end of the support zone around $30.
If the market just keeps falling through this support; buyers who see long term value in BHP might be looking for lower chart levels.
Here is a Fibonacci level that might prove useful in those circumstances. There are a couple of projections that coincide at $27.50. These project that the C/D swing will be 61.8% of A/B and 127% of B/C. For those who are not Fibonacci geeks; 127% is commonly used by traders and is the square root of 161.8%.
Ric’s on Twitter: @ricspooner_CMC