– A huge sell-off in stocks overnight with the Dow down more than 300 points the S&P 500 close to 2%. The reason for the sell-off is at the moment difficult to pin down. Europe gave the US a weak lead but that doesn’t usually matter. Some traders say it was the uptick in wages with the 0.7% rise in the employment cost index, others say it was Thursday’s Argentinian default. Currency and government bond markets didn’t move so finding the cause is all the more difficult.
– We don’t normally put charts in this note but to show the market rally and this pullback, here is the monthly futures of the S&P 500. You be the judge on the cause – maybe Alan Greenspan was right when he said yesterday, the market might have come a little too far too fast.
– Two days of stunning Sydney sunshine does not a summer make but last night’s stock market action just might be Glenn Steven’s window into the future when the Fed moves from taper to tightening.
– At the close the Dow was 317 points lower at 16,563, losing 1.88%. The Nasdaq fell 2.08% and the S&P 500 lost 39 points or 1.98% to 1,931.
– In Europe continental stocks were weak with the DAX down 1.95% to 9,407, the CAC fell 1.54% while stocks in Milan and Madrid were down 1.52% and 2.11% respectively. In the UK stocks fell 0.64%.
– The impact locally of course was that on the ASX futures market, the September SPI 200 contract is down 51 points at 5,518. The physical is going to be back under 5600 based on overnight moves so it’s worth noting that Deutsche Bank highlighted how poor Australian stocks look on a global comparison yesterday.
– Almost nothing but Wall Street’s sell-off will hold traders’ interest today and Asia is likely to be under pressure. This could mean the Shanghai markets foray above 2200 with yesterday’s 0.95% gain likely to give way to a little selling today. The Nikkei fell 0.16% yesterday and will be under real pressure today unless USDJPY can climb above 103. There is no material data in Asia today.
– Bonds didn’t budge which is remarkable given the Vix climbed 28% (very low base) yesterday to 17.08. US 10 year Treasuries finished unchanged at 2.56%, German 10’s closed at 1.16% while Gilts were at 2.60%.
– Currency trades were also remarkable resilient except for the Aussie dollar which lost close to 0.4% after yesterday’s 0.6% loss. Perhaps this is the market which says this stock sell-off really is a risk off move but time will tell. This morning the Aussie is at 0.9292. Euro is becalmed at 1.3386, Sterling 1.6880 and the Yen sits at 102.86.
– On commodities September iron ore was up 25 cents a tonne to $95.50 while Newcastle coal fell 35 cents to $69.40 tonne.
– Nymex crude continues to tank with the August contract down another $2.24 to $98.03 Bbl. Gold couldn’t rally on stocks’ move lower and sits down at $1282/oz and silver is $20.58/oz. Copper closed at $3.22 lb and on the Ags only corn fell dropping 1.31% while wheat was up 0.57% with soybeans up 0.33%.
Tonight is huge for markets with the release of non-farm payrolls. It is one of the two biggest data points each month and the market is looking for an increase in jobs of 233,000.
In Australia we get the release of the AiG PMI and then Markit PMI across the globe tonight as well.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
So what might happen if investors have decided that now is the time to head for the exits and knock off a bit of valuation froth off world stock markets as they position for higher rates? If this sell off does extend, it seems likely that the high yielding, defensive stocks might be in for some profit taking.
The Telstra chart might provide a bit of assistance, where you can see:
- Yesterday’s high hit resistance. A close below yesterday’s low would represent a rejection of the resistance in a sign of weakness
- If the RSI finishes below its latest support around 58 this would be the classic divergence – another sign of weakness.
- A move back through the May peak at $5.40 would be a further sign of weakness
- The first major support area is around the 200 day moving average and potential trend line i.e about $5.15/5.20
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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