Good morning and welcome.
– The psychological fabric of stock traders seems to have taken a material hit if the price action and weak close overnight are any indication. Pictures paint a thousand words as David Gates and Bread sang in the 70s and this chart of the S&P 500 futures says it all.
– After trying to rally, stocks and futures traders sold aggressively into the close. This tells us that uncertainty for the outlook has risen materially and the buy-the-dip meme which has so permeated US stocks since the start of QE3 is under pressure. The question is how far and how fast does this pressure to the downside build and whether or not it will cause the Fed to delay either the end to QE this month or the normalisation of rates in 2015.
– At the close, the Dow was 223 points lower for a fall of 1.35%, closing at 16,321. The Nasdaq was down 1.46% and the S&P 500 dropped 31 points or 1.63% to 1,875. Futures, which are about a 10-point discount to the physical look, biased to 1,800.
– In Asia, it was a mixed day’s trade with the Chinese trade data rescuing Shanghai from its lows at 2,341. But the close of 2,366 was still 9 points or 0.36% lower on the day. The Hang Seng had no such worries, rising 0.24%, while in Tokyo, a weaker lead from the US and a yen threatening 107 (now broken) has Japanese stocks under pressure. The Nikkei dropped 1.15% to 15,301.
– In Europe, stocks closed when the US markets were doing better, with the FTSE up 0.41%, the DAX up 0.25% and the CAC up 0.13%. But given the US drives everything at the moment, Europe will play catch-up until the US comes in tonight, so it is somewhat irrelevant.
– Locally almost all of yesterday’s gains on the SPI 200 were erased, with the December futures down 28 points to 5,106. Iron ore was up a ripping $3.25 so FMG might have another good day and the local market might defy the US for the second day in a row – maybe?
– In Asia it was a mixed days trade with the Chinese trade data rescuing Shanghai from its lows at 2,341 but the close of 2,366 was still 9 points or 0.36% lower on the day. The Hang Seng had no such worries rising 0.24% while in Tokyo weaker lead from the US and a yen was threatening, and has now broken, 107 has Japanese stocks under pressure. The Nikkei dropped 1.15% to 15,301.
– Bonds were closed for Columbus Day in the US but on Currency markets the Aussie dollar has done very well, up at 0.8772 now this morning and looking like Bill Evans and Rob Rennie at Westpac were right about a rally toward year end. It’s a strong performance in the context of USDJPY’s reversal from a 107.62 high to 106.80 now that stocks settled so much lower. Euro is higher as well to 1.2754, so this looks like a USD move.
– On Commodities, iron ore was higher as mentioned above but Newcastle coal remains under pressure with December futures losing another 60 cents to fall below $65 a tonne to $64.70. Elsewhere, Nymex crude was down 0.9% to $85.05 a barrel, gold is up at $1,235, finally doing its job as a fear gauge, and copper rallied to $3.04 a pound. On the Ags, corn was up 3.44%, wheat rose 1% and soybeans were 2.15% higher.
On the data front today, the most important single release each month for the economy is released – the NAB Business Survey. This is an excellent snapshot of so much of the economy. Also out is the ANZ-Roy Morgan weekly consumer confidence at 9.30am. New Loans are out in China and tonight we get a raft of CPI releases across Europe and the ZEW survey in Germany. In the US, it’s Redbook night.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Sifting through the doom and gloom, this looks like a chart that bulls might be able to latch onto for a while.
The Dalian Iron Ore futures chart looks like it might have completed a 5 swing decline. This suggests the possibility of a corrective rally. A gap higher on yesterday’s open and a strong uptrend in the slow stochastic also indicate the possibility of some upward momentum, at least for a while. Fibonacci followers would be anticipating a retracement up to somewhere in the 38.2%/61.8% zone.
The news catalyst for this was the September trade figures which showed iron ore imports up 14% year on year to 84.7m tonnes. The overall trade figures were also a relief in terms of the macro outlook for China’s economy with exports and imports up a healthy 15% and 7% respectively.
If this scenario turns out to be correct, it might help put a floor under the Australian resource sector and might help turn around recent underperformance by the ASX 200 (even if it means our index just falls a bit more slowly than others)
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC