– It wasn’t exactly a crash but the fall of 315 points or 1.79% for the Dow on Friday night is a sign of emerging weakness in the market as we head both toward year’s end and this week’s FOMC meeting and an expected change in language from the Fed about interest rates. But as I noted in our Weekly Diary of events, is the Fed really going to be the Grinch of Christmas or is it more likely to see how the emerging weakness in China, enduring weakness in Europe and the crash in energy prices plays out over the northern winter. Japan has shown what happens when things are rushed over the past 20 years and a month or three of low rates in the current global environment would hardly hurt. We’ll know Thursday morning our time.
– Speaking of Japan, it looks like Prime Minister Shinzo Abe’s government is being comfortably returned after the weekend’s election. Already he has said that Abenomics is only half done and that Japan is long way from the “dark days” of a few years back, implying more yen weakness and further reforms. Indeed this was the whole point of the snap election, just halfway through his first term. Abe was seeking to reinvigorate his mandate and policies – something he has likely now achieved.
– Also worth noting is the big blowout in the Australian budget’s deficit toward $40 billion this financial year that will be announced by the Treasurer today in his MYEFO update. Will it impact the Aussie dollar or interest rates in Australia? It’s hard to say but if it’s a shock to any traders or investors, they haven’t been paying attention. The FOMC and US dollar are more important drivers this week.
– Anyway at the close, US stock markets were all down even though consumer sentiment rose from 88.8 to 93.8, close to an 8-year high. As I noted Friday, “the technicals for the S&P look terrible” – they still do.
- Dow Jones down 1.79% to 17,281
- Nasdaq down 1.15% to 4,654
- S&P 500 off 33 points or 1.64% to 2.002
– European Markets were all lower again with energy stocks under pressure and a generalised deterioration in sentiment toward Christmas takes hold.
So, at the close.
- London(FTSE 100) down 2.49% to 6,301
- Frankfurt (DAX) -2.71% to 9,595 recent move above 10,000 looked exhaustive
- Paris (CAC) down 2.77% to 4,109
- Milan (FTSEMIB) off 3.13% to 18,601
- Madrid (IBEX) down 2.75% to 10,145
– Locally, the impact has been more weakness in the ASX futures trade on Friday night with the March SPI 200 contract off 59 points to 5110.
– On Friday, Asia was mixed with Shanghai up after China added more cash to the system. The Nikkei was also higher on the back of the reversal of fortune for the yen. Today’s action will be caught in the cross current of a general sell-off in European and US markets and what could be Abenomics-induced yen weakness.
At the close:
- Tokyo (Nikkei Average) up 0.66% to 17,372
- Hong Kong (Hang Seng Index) down 0.27% to 23,249
- Shanghai (Shanghai Composite Index) up 0.42% to 2,938
– Bonds are were you can get a real feel for what’s going on in investors’ minds. US 10s rallied 10 points to 2.08% – yes, you read that right. Gilts are at 1.80%, Bunds at 0.63%!!! Incredible and while to a certain extent this is a reflection of the weakness in stocks, bonds have been rallying while stocks did the same recently – Danger Will Robinson.
– On commodity markets, there was some really interesting price action in the iron ore market which looks like there might have been some very specific position squaring in the market for 2015 contracts. They rose more than $2 in the early part of the year and more than $1 a tonne for the remainder of the year out to 2016.
– Elsewhere, Nymex crude crashed again, down 4.1% to $57.59, copper was at $2.93 a pound and gold was at $1,222. On the Ags, corn rose 2%, soybeans were down 1.4% and wheat rose 1.42%.
– MYEFO will dominate in Australia today but we also have motor vehicles. In Europe, there is a data drought while in the US tonight it’s not much better with the release of NY Empire State manufacturing index, industrial production and the NAHB housing market index.