Yesterday’s price action on Asia’s currency and commodity markets looked a lot like a Monday morning “head fake”.
So it’s no real surprise that oil, gold, the Aussie, Yen and Euro all rallied overnight. But it’s not a surprise that stocks around the globe fell heavily.
Monday mornings in Asia after big Friday moves are like the twilight zone. The big money markets of Europe and the USA are closed, so liquidity is thinner than any other time of the week. That means that it’s easy for prices to be pushed in a manner that they can’t be on any other weekday morning.
So don’t be surprised if yesterday was a pessimistic crescendo and an end to some of the runs we have seen lately – at least until Christmas.
As for stocks it’s a similar story.
Outside of the ASX, stocks have been going gangbusters – S&P new all-time highs, DAX back near 10,000 – and there’s a general mood that the free money culture of the globe’s central banks is all that matters; forget the clearly weakening economy in Europe and soft spots the USA and China are having.
Inflation doesn’t just fall, it falls for a reason – lack of pricing power. So as companies, oil producers, miners, et al seek out custom in a lower demand environment than anticipated they force prices down.
This is the clearest sign that demand is weaker than many believed, including, perhaps, in the United States, which means that the recent collapse in crude may be the harbinger of some serious equity weakness as my article This chart will scare the heck out of stock longs yesterday suggested.
Nothing is guaranteed in markets except perhaps that Monday morning Asia is often a poor guide to the week and when every bank in the planet is putting out the same trades for 2015 – the stage is set for a reversal.
Anyway to the markets – here is the scoreboard for all the markets that matter.
US markets struggled under the weight of weaker Chinese data yesterday and the news that Black Friday’s post-thanksgiving sales were 11% lower than last year. ISM manufacturinbg was solid though at 58.7 at post 2011 highs.
- Dow Jones down 0.29% to 17,777, 50 points off the lows but looking weak off the highs of the day
- Nasdaq down 1.35% to 4,727, Apple smashed and the tone is one of profit taking.
- S&P 500 down 0.70% to 2,053, at any other tyime this would still be a great closing level, which suggests room for profit taking not panic.
European Markets were under pressure from crude’s fall and news that manufacturing was on the weaker side when measured by the Markit PMIs. Italy, France and Germany were all below 50 but Spain and the UK printed 54.7 and 53.5 respectively.
But it was a sea of red on Europe’s stock markets.
- London(FTSE 100) down 0.99% to 6,656, spiked lower then choppy trade
- Frankfurt (DAX) down 0.17% to 9,964, clearly the bulls haven’t given up entirely but there is a solid technical reason to sell around here
- Paris (CAC) recovered from early lows to be down just 0.3% to 4,377.
- Milan (FTSEMIB) down 1.64% to 19,686, weak all day
- Madrid (IBEX) down 0.91% to 10,673, weaker all day
The washup of all of the above was that after a terrible day yesterday, where the physical dropped 2% futures traders found the stength to push the Dec SPI 200 contract up 15 points to 5,227.
In Asia yesterday Hong Kong was lower after the protests started being broken up, Shanghai was up on a combination of hopes for more stimulus and the announcement of the draft deposit guarantee scheme, which will favour the big 5 banks.
Here’s the Asian Scoreboard:
- Tokyo (Nikkei Average) up 0.75% to 17,590 – this will be reversed today, given the Yen’s move lower/li>
- Hong Kong (Hang Seng Index) down 2.59% to 23,367, amid democracy protests
- Shanghai (Shanghai Composite Index) down 0.11% to 2,680, just couldn’t avoid the HK tractor beam after lunch.
On currency markets, the US dollar lost ground across the board. Some reports suggest that’s because it has gone a little too far too fast. That makes sense because positioning in currencies like the Euro is at its most bearish since the the depths of the GFC when the run to the USD safe haven was at its zenith.
USD short is becoming a crowded trade.
So this morning Euro is at 1.2471, the Yen has pushed back of the 119 level again in Asia yesterday and its at 118.34, this morning, the Aussie is almost a cent higher than the 0.8417 low yesterday at 0.8502 this morning and Sterling it’s also higher up at 1.5738.
The impact of a weaker dollar was also felt on commodity markets with crude up 2% to $69.15 a barrel, gold spiked above $1200 on the rise in volatility and copper lifted its head back to $2.99 a pound up 2%.
On the data front today in Australia we have building permits and the quarterly current account balance along with the RBA rate decision at 2.30. PPI is out in Europe tonight and ther IDB/TIPP economic optimisim survey, construction spending and ISM New York are out in the US.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
62% over 7 weeks. That’s how much you would have made buying Qantas when it kicked off its 40-week moving average on 14 October and selling at yesterday’s close.
The chart below is a weekly but if you look at the daily version you will see that yesterday’s very large candle had a big upper wick with a relatively small body near the low. This means a big reversal from the day’s high and is a potential sign of short term weakness to come.
A trend peak at yesterday’s high would also amount to a temporary rejection of resistance formed by the July 2010 low. This looks a possibility given last night’s recovery in the oil price.
Those hoping for a pullback to buy into the Qantas uptrend might be eyeing the 38.2% and 50% retracement zone around $1.70/$1.80 for starters.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC