– A dismal start to the trading week yesterday as concerns over the impact of the crackdown on protestors in Hong Kong and the graphic images of “umbrella man” protestors being teargassed.
– It may seem a long bow that markets worry about Hong Kong protests so much and it is worth noting that by the end of the day US stocks had recovered most of their initial losses. But the key here is that while the Chinese leadership is fighting corruption on the mainland and overhauling the economy these Hong Kong protests could cause further ructions through the economy.
– So what hurts Chinese growth hurts markets.
– At the close then the Dow was down 42 points or 0.25% to 17,071, the Nasdaq was down 0.14% to 4506 and the S&P 500 was off 0.24% at 1,978.
– If anything last night the personal income and consumption data highlighted that the US economy is on the mend, but that means that we are closer to Fed rate hikes. Sure, they are more than 6 months away, but in the grand scheme of an investment time horizon that is not very long so the focus in Forex and on stocks is certainly shifting to the eventual normalisation of US interest rates.
– In Europe the FTSE was largely unchanged at 6,647, the DAX fell 0.71% to 9,423 and the CAC in Paris dropped 0.84% to 4,358. Milanese stocks dropped 1.3% while in Madrid stocks were 1.52% lower. Keep an eye on Catalonia by the way – Spanish stocks might seriously underperform soon.
– Locally the Australian market looks terrible. Banks under pressure, iron ore still falling and sentiment clearly at a low ebb. Yesterday saw the physical market lose 0.9% to 5,264 and overnight there was more weakness on the SPI 200 with the December contract down another 12 points to 5,250.
– In Asia yesterday it was and interesting days trade. The Hang Seng dipped 1.90% and the concerns about the protests knocked (or were at least the excuse for selling) markets in Australia, Europe and the US but both the Nikkei and Shanghai exchanges were higher. The Nikkei rallied as USDJPY surged once again and it closed up 0.5% to 16,311. In Shanghai the exchange was up 0.44% to 2,358.
– The selloff in stocks is being confirmed by the action in bond markets. Core markets like the US, Germany and the UK are rallying but the periphery, Italy and Spain, are selling off which is exactly what you would expect as risk aversion rises. At the close US 20s rallied 5 basis points down to 2.48%, German 10-year Bunds finished at 0.92% while UK 10 year Gilts rallied 3 points 2.44%.
– On currency markets the US dollar was in the ascendancy all day yesterday pushing the Aussie and other currencies substantially lower. The zenith of the move – low for the Aussie – was around 4pm Eastern Standard time which coincides with European traders getting their feet under the desk as the week kicked off. But the market reversed a little fairly swiftly and the Aussie climbed of a low 0f 0.8684, its lowest level since January this year, and this morning it sits at 0.8715 still down over the past 24 hours however.
– Elsewhere the Euro did okay all things considered is at 1.2688, USDJPY is at 109.47 and Sterling is at 1.6240.
– On commodity markets iron ore got hit very hard in Dalian futures trading yesterday and while they recovered the fall was still substantial on the day with December 62% Fe furtures on the ICE fell $1.33 to $77.05. Newcastle coal for the same month dipped a somewhat substantial 80 cents to $65.30 a tonne.
– Nymex Crude wasup on the good US economic data to $94.30 a barrel for a gain of 0.81%. Copper rose a cent to $3.04 a pound and gold sits at $1,215. On the Ags, wheat was up 0.93%, corn was 0.5% higher and soybeans rose 0.9%.
On the data front we get the ANZ – Roy Morgan consumer confidence survey this morning and then private sector credit. More importantly though, HSBC Chinese PMI is out. Tonight in Europe there is a huge amount of CPI data, German employment and UK GDP. In the US consumer confidence, Case Shiller home prices, Chicago PMI and the Redbook Index are out.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Some of the quality stocks with positive exposure to a weaker Australian Dollar via overseas businesses have held up reasonably well throughout the current sell off. Blood plasma group, CSL is one of those.
In holding its own, the CSL chart has formed a triangle pattern. For technical traders, this might create a couple of opportunities. One approach would be to buy if price hits and then bounces off the triangle support for a 3rd time. Another would be to buy on a breakout through the triangle resistance.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC