It’s October folks!
– Stocks were well off their lows at the close but it was an incredibly weak night earlier with the Dow off as much as 425 points at one stage before recovering in the past couple of hours to close down just 173 points or 1.06% lower at 16,142. The S&P 500 has also recovered off just 16 points now at 1,862 for a loss of 0.84% while the Nasdaq is off 0.78%.
– There were so many negative factors overnight it’s hard to pin any one down for the initial carnage. The Greek crisis which has been simmering again burst to the fore once again, the news that a nurse infected with Ebola was on a plane with a fever, weak data in the US and recent weak price action.
– But as if by chance once the Beige book was released this morning showing signs of growth in the US economy remain a rumour leaked that Fed Chair Janet Yellen said at a meeting over the weekend that she was still ‘confident in the durability of the US economic expansion despite slowing global growth and turbulent financial markets.’ Convenient? Perhaps but it worked.
– So the story is not the crash but the recovery – it has been absolutely phenomenal. We might have seen the pessimistic crescendo needed to put a bottom in place.
– Which means poor old Europe has gone to bed looking the wrong way once again. Sure the Greek thing is not pleasant but it was largely US weakness that saw prices tank. At the close the FTSE 100 was down 2.83%, the DAX closed down 2.87% and the CAC was down 2.76%. The periphery of Milan and Madrid.
– Locally however the big fall in iron ore overnight, with December futures down $2.55 a tonne back to $80.56, will mitigate against a continuation of this weeks strength. Equally it might explain why the December SPI 200 futures haven’t rallied along with US markets. The ASX website reports that the December contract remains down 34 points at 5,185 bid this morning.
– In Asia yesterday the markets were better bid with the Nikkei up 0.92% even though Japanese industrial production tanked 1.9% in August to take the year-on-year rate to -3.3%. In Shanghai stocks were up 0.62% unfazed by the fall in inflation to 1.6% the lowest rate in years. In Hong Kong stocks were untroubled by violence associated with the protests finishing up 0.92%.
– On bond markets there was blood on the streets with US 10 year treasuries trading through a 30 point range from a high 2.23% to a low of 1.91%. The changes in capital value a move of 30 points causes when rates are so low is massive with the price paid for a 10 year bond moving through a 7% range. The yield is back above 2% at the close still down 7 points to 2.14%. In Europe rates are negative for the first 4 years of the German bond curve and 10 year Bunds rallied 8 points to an incredible 0.72%. In the UK Gilts were down 0.17 points to 1.96%.
– On currency markets it was also a wild and crazy night with USDJPY trading through a more than 200 point range of 105.18-107.49. It sits at 106.11 now. Answering the question perhaps on whether we saw the pessimistic crescendo for stocks USDJPY satisfied my targets for this move overnight. Euro was also volatile moving through 1.2623-1.2885 and sits at 1.2781 while GBP is now at 1.5936. The Aussie dollar went along for the ride and is at 0.8782 well off a low of 0.8673 and a high of 0.8860.
– On commodity markets as noted above iron ore fell heavily and Newcastle coal managed a small rally with the December contract up 35 cents to $64.55. Crude had a small loss of 0.16% to $81.71 a barrel but this belies the fall under $80 at one stage last night. Copper finally reacted to the deteriorating global outlook and fell to $3.00 a pound and gold is at $1,240. On the Ags wheat dipped 0.5%, corn lost 2.35% while soybeans rose 1.45%.
On the data front new loans in China is the key releases for the Asian session but we also get another speech from RBA Assistant Governor Debelle as well as the RBA FX transaction which might be interesting to look at. Tonight CPI for the EU is important as is the trade balance .
Also tonight in the US we get Philly Fed, NAHB sentiment, TIC flows and industrial production data.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
The questions we are all asking this morning would have to be – how bad might this stock market sell-off get? AND is last night’s big bounce off the lows in US markets a sign the worst is over?
If you are a trend follower who believes in trading what you see and not what you think, then you are likely to want a lot more evidence than we currently have that this downtrend is ending.
Apple is a case in point. Last night saw a break below trend line and 55 day moving average support which is a concern. Despite the big bounce off the lows last night, the trend is down. Price is making lower lows and lower highs. At this stage it would take a move above the recent high at $102.37 to start providing some hard evidence that the trend has changed.
Potential support is provided by the 38.2% retracement at $91 and the 50% at $87.12. Significantly, the 200 day moving average coincides with the 50% level.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC