Your morning market update is a little ugly.
– Perfect storm or just a necessary reaction to complacency? You be the judge but by whatever measure, the price action in markets overnight was terrible with the Dow having its 7th triple digit loss of the year and the Nasdaq about to loss 100 points for the first time since 2011. Add in the fact that the S&P 500 has not only broken an important trendline but then hit my technical target and there is little doubt that fear is rising.
– Traders will be wondering whether this is a buying opportunity or the start of something bigger, but it’s worth remembering the points we made last week about Minsky and Mandlebrot and what they tell us about the stickiness of volatility. You can refer to the piece here
– – At the close the Dow is down 326 points or 2.08% at 15,373, the Nasdaq is off 107 points or 2.60% and the S&P 500 is 2.28% lower for a loss of 41 points (not a typo) at 1,740.
– The big story of the night was that as Emerging Markets burn, the manufacturing PMI in China over the weekend was at a 6-month low and then in the US the ISM Manufacturing PMI missed badly, printing 51.3 against expectations of 56. Chris Weston of IG MArkets told BI this was the biggest miss since 2008.
– Europe’s Markit manufacturing PMI’s were actually pretty good. Germany hit a 32-month high, Spain a 65-month high and even France is well, less bad, hitting a 4-month high even though it is the only major continental country in the contraction zone. But when markets go off and fear rises, there is little place to hide except the yen and Gold. So European shares were hit hard. The FTSE did reasonably well, losing only 0.68%, while on the continent the DAX fell 1.28% and the CAC fell 1.39%. In Madrid and Milan, stocks fell 1.97% and 2.63%.
– On the Sydney Futures Exchange, this carnage on global markets is reflected in a 95-point fall in the SPI 200 futures, which are sitting at 5048 bid this morning. The bond boards were only up 3 and 3.5 points on the 3’s and 10’s respectively, which is a little unusual given the selling in stocks and the rally of 6 points in US 10’s to 2.59%.
– On global FX markets, the yen swept the floor with all comers as USDJPY crashed to a low of 100.76 and it sits at 100.91 for a loss of 1.09%. The euro benefited from the better data and is up 0.27% at 1.3528 but sterling is under pressure, down 0.86% to 1.6303. The Aussie dollar is having an amazing night, all things considered, hardly moving at 0.8749 this morning as the fear passes it by. Emerging market currencies such as the Turkish lira, which sits at 2.28 this morning, came under pressure again also.
– On Commodity markets, Gold rallied to $1,265 but sits back at 1,257.40 at the moment. Nymex crude fell 0.91% to $96.60 and Copper lost another cent to $3.20 lb. The Ags proved that not everything is correlated, with Wheat up 1.39%, Soybeans rising 0.78% and Corn up 0.40%.
On the data front, the RBA decision is out at 2.30pm and the discussion and statement which will accompany the decision has no doubt been somewhat complicated by the market rout. They’re still unlikely to move and will probably reflect some satisfaction with the Aussie dollar’s fall and no fear of inflation in Australia.
Offshore, it’s fairly quiet but the ISM New York will be watched closely along with factory orders as to whether or not they reinforce the overall ISM last night. In Europe, it’s fairly quiet with Italian CPI and EU PPI.