– Markets showed that stocks do have downside risk overnight when reports that Syrian planes bombing Iraq saw a quiet but positive day turn down. Interestingly, the selling continued into the close and the VIX (stock market volatility) index rose.
– So at the close, the Dow was down 119 points for a fall of 0.7% at 16,818, the Nasdaq fell 0.43% to 4,350 while the S&P 500 lost 13 points or 0.64% to 1,950. My view – only a break of 1923 will open up further downside.
– Datawise in the US, new home sales surprised everyone by printing above 500,000 units in May for a rise of 18.6%. Confidence was higher as well, printing a six-and-a-half-year high at 85.2. The Case Shiller house price index rose 10.8% in the year to April as overall price appreciation continues to decelerate. Richmond Fed manufacturing was disappointing however, printing 3 against 7 last.
– Also worth noting in anecdotal economic news, BI US reported that Caterpillar sales folk in the US are upbeat.
– In Europe, the big news was that BoE Governor Mark Carney struck a more dovish tone on the economy and interest rates, noting slack in the employment market and lack of inflation risk. He took a pasting from currency traders on Twitter but his change of tone, which was accompanied by similar comments from MPC member Charles Bean, might simply reflect the fact that Janet Yellen was dovish on the US interest rate outlook and Carney and the BoE does not want sterling above 1.70.
– On European Bourses, the FTSE fell 0.2%, Milanese stocks fell 0.25% while in Madrid, stocks dropped just 0.11%. In Paris, stocks eked out a 0.05% gain while the DAX was up 0.17%, even though IFo business assessment (114.8), climate (109.7) and expectations (104.8) were a little weaker than expected.
– Global bond markets saw rallies in Italy and Spain 10s of 3 points to 2.76% and 2.65% respectively. UK Gilts were unchanged at 2.74% while Bunds were down a point to 1.32%. In the US however, with stocks off, the bulls had the market under control and drove 10s 5 points lower to 2.58% – a capital gain of 1.83%!
– In Asia yesterday, the Nikkei was quiet, rising just 0.04% to 15,376 but the Hang Seng and the Shanghai exchanges were up 0.33% and 0.48% respectively. There is nothing out in Asia today but reverberations from US markets are to be expected.
– Speaking of which, the ASX, having had a weak day yesterday with the physical losing 0.4% to 5432, had a shocker overnight as September futures dropped 27 points to 5360. The technicals look terrible and the ASX futures are at their lowest since mid-April.
– On local bond futures the 3s were 4 points higher overnight to 97.29 (2.71%), 9 points higher than this time yesterday while the 10s are up 4.5 points to 96.39 (3.61%).
– Turning to Currencies, the Aussie is lower but it’s not an isolated move with both the Kiwi and Loonie also weaker. That’s not to say this isn’t a decent reversal for the Aussie which at 0.9367 this morning is back below the level before the Chinese Flash PMI on Monday. Elsewhere, sterling is down with GBPUSD at 1.6981, suggesting that traders headed Carney’s warning but still think the economy is in good shape. The euro sits around 1.36 still at 1.3604 and USDJPY remains becalmed 20 points either side of 102. It sits at 101.94 this morning.
– On Commodities, Iron Ore was unchanged at $93.75 for September delivery. Newcastle Coal fell another 15 cents to $70.35 tonne. Nymex June Crude is back below $105.94 Bbl, Gold is trying really hard to break out at $1318 oz and Silver is up at 20.86. Copper lost a cent to $3.14 lb while the Ags headed lower once more and remained pressured. Corn fell 0.39%, Wheat dropped 1.51% (!!!) and Soybeans lost 0.79%.
On the data front, nothing of note besides RBA deputy governor Lowe’s speech today before the German GfK consumer confidence this evening. Then it’s durable goods in the US, the third read of Q1 GDP and personal consumption.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
I wrote about Kathmandu on 14 June when it was testing the support zone of its 200 day moving average and the trend line just below it. As things turned out, this was one that played out pretty much to script with potential sellers getting another bite at the cherry courtesy of a neat 38.2% retracement before yesterday’s profit downgrade.
The question now before traders is how much further could this stock fall if the weather stays warm and consumers remain cautious? Looking at Kathmandu’s chart, the $2.60 area looks a possibility. This represents a 61.8% retracement of the major rally. Depending on how quickly we got there, it would also pick up a potential long term trend line with the kind of 45 degree angle that’s typical over the long run.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC