– Another big night on markets with crude oil trying to rally before tanking once again to be down 4.11% at 7.10am AEDT. Stocks in Europe had a shocker, losing more than 2% and the VIX was up more than 2% closing in on a 12-month high but has since turned lower as US stocks recovered from their lows. ANZ’s head of market research Richard Yetsenga reckons that more volatility is coming – at least into year’s end.
– It’s as much about the deterioration in growth globally, the prospect of pernicious deflation in Europe and the ECB’s inability to do anything about it, and of course fear of the Fed this week. I still doubt they’ll be a terrible Grinch and steal Christmas but the words the Fed uses later this week are super important – particularly given the lack of market liquidity toward the end of 2014. Having said that though, the 1.3% rise in industrial production for November reported last night just reinforces that the US economy is healing, even if NY Empire manufacturing crashed from 10.16 to -3.58.
– But it’s oil’s fall which is both the cause for despair and hope at the moment for markets. Despair because its fall knocks so much inflation off Europe at a time when the region is turning Japanese and the ECB is struggling to get things moving. Morgan Stanley reckon it will knock 0.48% off global developed market inflation. That’s not good for Europe. But as Glenn Stevens said last week, it is very good for growth going forward. One caveat though – the post-GFC world feels different to the pre-GFC and post-WWII world, so the transmission mechanism Stevens expects, like the wealth impact on Australian consumers, is likely to be materially slower than normal.
– Anyway with 50 minutes to go before the close, US stock markets were all down but off their lows.
- Dow Jones down 0.28% at 17,233, well off the 17,115 low
- Nasdaq down 0.7% to 4,621
- S&P 500 down 6 to 1,996, well off the 1,982 low
– European Markets were all lower again with energy stocks under pressure and a generalised deterioration in sentiment toward Christmas takes hold. But the moves are huge at the moment and volatility is rising and feeding on itself. Indeed, in the last five days the falls in the big European markets we follow range between -7.38% in Paris to -10% in Milan.
So, at the close.
- London(FTSE 100) down 1.87% to 6,183
- Frankfurt (DAX) crashed 2.72% to 9,334 and still looks pressured
- Paris (CAC) down 2.53% to 4,005
- Milan (FTSEMIB) down 2.81% 18,079
- Madrid (IBEX) off 2.38% 9,904
– Locally on the ASX, the March SPI 200 futures contract is off 36 points to 5,098 after a weaker but not terrible day on the physical yesterday where the market was only down 0.6%. Overall futures look biased back to the lows of September. But if that level gives way…
– Given the events of yesterday, economic events were rightly on the backburner so if you want to catch up on all the MYEFO news from Business Insider follow this link.
– In Asia yesterday, the Nikkei was lower once again and had its weakest close on around a month and the technicals are looking a bit wobbly. That’s worth noting if you trade USDJPY even if the Tankan survey seemed a bit circumspect. Shanghai managed to rally but Hong Kong was under pressure with the bigger markets.
At the close:
- Tokyo (Nikkei Average) down 1.57% to 17,099
- Hong Kong (Hang Seng Index) down 0.95% to 23,028
- Shanghai (Shanghai Composite Index) up 0.5% to 2,953
– Last night wasn’t a huge night trade but on bond markets the sell-off in equities appears to be becoming accepted with Deutsche Bank saying that the US 10-year Treasury yield is headed under 2%. As I write, US 10s are at 2.11%, German 10s at 0.63% and Gilts at 1.81%.
– On currency markets, equity weakness often equals US dollar and yen strength which is largely what we have seen overnight. Before we get to that though, it’s worth noting that the utter collapse of the Russian rouble continues. It traded to 60 for the first time ever last night. Back to the big currencies and the Aussie is under pressure at 0.8217, euro tried to rally but has failed and sits at 1.2435 while the pound is at 1.5642. USDJPY is below 118 at 117.76 – it could go much lower if stocks go into a funk.
– Commodities were at it again, particularly crude which tried to rally but is now down 3.57% for this month’s Nymex delivery. Gold continues to be unable to get any strength from, well, anything, including volatility, and it is down at $1,207. The Ags were all higher with wheat up 2.83%, soybeans up 0.48% and corn up 1.60%. On the bulks, iron ore had a shocker with the previous day’s rallies in 2015 and 2016 giving way to heavy selling. Perhaps because the Australian Government gave a green light forecasting the price at $60 for the next two years, but either way, prices fell between $1.50 and $2.50 between April 2015 and June 2016.
On the data front today, the RBA board minutes are out at 11.30am with assistant governor Guy Debelle giving a speech at 1.15pm to the 27th Australasian Finance and Banking Conference, Sydney. It’s also Flash PMI day with release of Chinese, French, German, EU and US data. Stress tests in the UK are also out along with the ZEW survey in Germany and bulding permits and housing starts in the US.