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Daylight savings and Friday. You’re already winning… unlike markets overnight.
– Last night’s price action is best summarised by a four-letter word – UGLY. Just plain ugly. TheDow is down 335 points or 1.97% at 16, 659. The Nasdaq is off 2.03% to 4,378 and the S&P 500 has lost 2.08% or 41, yes 41, points to 1,928.
– It’s a continuation of the recent theme I’ve been highlighting about the increase in volatility and the fact that when volatility transitions from low to high it becomes sticky for a time – Minsky and Mandlebrot writ large.
– The actual catalyst is hard to pin down, although the more than 6% loss on coal stocks is easily slated home to the increase in Chinese tariffs. Rather, it still seems that traders are finding it hard to justify valuations to themselves. Is Fed language going to fix a slowing global economy? Can it fix a German economy slipping inexorably into the mire and is QE still going to end this month? As highlighted last week, any trader know what happens when the Fed stops buying bonds – stocks fall.
– It doesn’t mean a crash is around the corner but it does mean that naturally traders take a little cash off the table. As the great investor Kenny Rogers taught us: “You gotta know when to hold ’em, know when to fold ’em.”
– Again Europe proved it is in the worst timezone on the planet, missing out on much of what happened in the US. German trade data was weak in August with exports and imports both much weaker than expected.
– So at the close, the DAX was up 0.11% at 9,005, the FTSE was down 0.78% to 6,432, the CAC dipped 0.65% to 4,141 and stocks in Milan and Madrid fell 1.34% and 0.63% respectively.
– Locally the SPI 200 December futures reversed yesterday’s strength, falling 54 points to 5,225. It’s been whipsaw trade lately and with the US markets closing on their lows, there is going to be a lot of negativity in the Australian market and around Asia today. Could we see some bottom fishing? Maybe, but there is an old traders’ adage about what happens when you pick bottoms….
– In Asia yesterday, Nikkei weakness reflected yen strength to a large extent. But equally the foreign buying of Japanese assets data released showed that Japan and the yen remain safe havens, with the latest weekly purchases the highest since 2011. That means if this stock market volatility heads into a higher range, the yen will strengthen further, putting additional pressure on the Nikkei.
– Elsewhere in Asia the release of Chinese new loan data will be very important for the region today. But the Shanghai, 2,689, is likely to come under pressure regardless today. Likewise the Hang Seng’s 1.17% gain yesterday is likely to be reversed.
– On Bond markets, US 10s fell to 2.28% at one stage before closing at 2.33%. German Bunds were at 0.87% and Gilts fell to 2.26%.
– On Currency markets, there was a massive reversal of fortune overnight with the weak German data and rethink on the Fed kicking the US dollar and the yen higher. The Aussie is back at 0.8781, which is incredible given it traded up to 0.8898 in a rather strange reaction to the weakish labour data yesterday. Euro is also way off the high at 1.2684 from 1.2791 high and GBP is at 1.6111 also more than 1oo points off the high of 1.6226. USDJPY is at 107.90.
– On Commodity markets, coal is off on the news of China tariffs but iron ore is up with December futures at $78.21. Nymex crude tanked again – telling you what is actually driving sentiment – with a loss of 2.58% to $85.06. Copper is resisting the falls for the moment at $3.03 while gold can’t really get any traction and is still in the low $1200s at $1,224. On the Ags, wheat fell 2.36%, corn rose 0.41% and soybeans rose 1.16%.
On the data front, BoJ minutes should float past fairly easily with the focus on China. In Australia, we get the release of home lending data and then there is second tier data in Europe and the US tonight.
All eyes are on the price action though – will the recent pattern of reversal see the Dow rally or is it about to break?
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
The Mirvac chart looks as though it might be telling a happy story on what promises to be a gloomy day for the overall market.
Yesterday, Mirvac announced it had bought the iconic, Sydney harbour side shopping centre, Birkenhead Point. The cost was $310m which represents a rental yield of 6.6% and the market obviously approved. As the chart shows, the share price gapped higher on the open and closed up 2.5% on the day.
From a technical point of view it will be interesting to see if price can now stay above this gap. If it does, it will look like a breakaway gap suggesting higher prices to come with potential for another test of the channel resistance line above $1.90.
Opinions on the outlook for the residential property market are very divided. Mirvac is a major developer of residential apartments. If you are in the camp that believes there’s an underlying housing shortage in Australia and a medium term trend towards higher density dwellings, this might be a stock to watch on an undemanding multiple of around 14.3 times F15 earnings.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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