– Stocks had a wild and crazy night in both Europe and the US with a US surge around midday rescuing Europe from its lows but a late afternoon swoon in the US will see European traders a bit peeved by that and likely opening lower. Indeed most traders won’t like the look of a weak close for the second day in a row, seeing it as a troubling sign from a market structure and technical point of view.
– The big economic release was an appalling ZEW survey which tanked from 25.4 to 3.2, yes 3.2, in October. The NAB says this is the lowest level since June 2010. Expectations were also lower falling to -3.6 from 6.9 in September, the first negative reading since November 2012. This is not good news for Germany or Europe and the NAB’s economics team said this morning that “the German economy is losing traction very quickly and there is a real prospect that it could contract again in Q3 after the 0.2% fall in Q2.”
– That is bad news for Europe and the global growth outlook. But the soft outcome in UK inflation, which printed no change in September and a year-on-year rate to a 5 year low of 1.2%, says aggregate demand in Britain is not strong (no demand, no price pressures) and as a result the chances of a BoE rate hike any time soon receded and the Pound was smashed.
– Reflecting this and other concerns of markets at the moment – at least in the minds of traders and investors – the US 10 year Treasury yield rallied 8 points to 2.20%. German 10’s are at an all-time low of 0.8%, down 5 points – that’s a capital gain of 6.27% on Bunds overnight, tiger country. In the UK 10’s rallied 4 points down to 2.13%.
– On US stocks at the close the Dow ended down 6 points after trading through a 190 point range. The Nasdaq managed to hold onto a fair chunk of its gains up 0.32% to 4,227 while the S&P 500 rose 3 to 1,878 for a gain of 0.17%. To put that in context though that is 21 points below the high of the day at 1,899!
– Europe finished in the black but that is largely irrelevant now. The FTSE closed at 6,393, the DAX at 8,825 and the CAC closed at 4,088.
– Locally the ASX has had a cracking 2 days this week dancing to its own tune. Last night’s moves in offshore markets took it on a roller coaster ride with the December ASX SPI 200 futures trading a range of 5,159 to 5,212 – 63 points – before closing down just 3 points at 5,175 bid.
– Turning to Asia yesterday and it was an ugly day across the region. The Nikkei hates the fact that global investors love the Yen at times like this so with the twin headwinds of a lower USDJPY (106.95) and US equity weakness the Nikkei finished off a massive 364 points or 2.38%, closing at 14,937. In Hong Kong and Shanghai stocks were much more stable falling only 0.41% to 23,048 and 0.30% to 2,359 respectively. Chinese CPI is due today so this could be another big day for Asian trade.
– On currency markets GBP was smashed lower after the inflation data and is at 1.5905 this morning. Euro is also lower, buffeted by the weak German economy and it is back at the 1.2650 region. This took the Aussie sharply lower from the ridiculous move to 0.8812 cents yesterday after the NAB survey – did traders not look at what it said about the economy? ICYMI here is our breakdown from yesterday and the fact that it trended at number one on the site for so long yesterday in itself suggests people are worried about the economy in what could be a negative feedback loop.
– On commodity markets iron ore consolidated its recent stellar gains with December futures off just 14 cents to $83.11 a tonne. Newcastle coal however is still getting smashed after the recent Chinese tariff imposition and was down another 50 cents to $64.50 a tonne.
– Elsewhere the big news internationally is the crash in Nymex crude which fell 4.12% to an incredible $82.21 a barrel. Copper managed a rally however up 1.27% to $3.08 a pound and gold managed to hold above $1230 and it sits at $1,232 an ounce this morning. On the Ags corn was 2.89% higher, wheat rose 0.59% and soybeans were up 1.76%.
On the data front the Chinese CPI is huge in Asia today but equally the release of Westpac-MI consumer sentiment is important in shaping expectations about retail spending and consumption in Australia in the quarters ahead. There is a raft of CPI’s in Europe and Mario Draghi is speaking. Retail sales in the US is going to be big tonight as well.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
With the oil market looking to be in a high momentum, capitulation sell-off, energy stocks will be under pressure again today.
Any further weakness in the Oil Search price would start to look like a pretty clear break below the potential trend line dating back to mid-2011 and the 38.2% Fibonacci retracement level.
Looking at the chart for possible future supports the $7.50/$7.90 area looks a candidate. The market made a low around this level in the middle of last year and also peaked there in 2011 and 2012. For good measure $7.65 would also be a 50% retracement level of the last major rally.
However, the structure of the downtrend so far looks pretty bearish and could be a warning sign for potential bottom pickers at this stage. The latest move down looks like a powerful, extended, 3rd swing lower. This could suggest we could have quite a bit further to go before this whole correction plays out.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC