A quick recap:
I remember writing my morning report on September 12, 2001 in Sydney when I was head of currency strategy at the NAB. The attacks in New York were so fresh and the emotions were so raw that all we did was publish a short note saying our hearts, thoughts and prayers were with NYC, the victims and their families.
The scale of the tragedy was just too large to fathom and even though the trader and strategist in me wanted to scream the Australian dollar and stocks are about to get crushed, it wasn’t the time.
Fast forward 14 years and we have had attacks in Bali, London, in many other places around the globe, and now Paris over the weekend. That means, unfortunately, that unlike 2001 we now also have a precedent bank of the type of reaction we might see in markets and a certain level of acceptance that these types of attacks are no longer unusual. So people keep trading and markets keep moving.
That’s important context as we head into the days ahead on markets and try to gauge the reaction of traders to the events.
Already stock markets were set to open weak after some heavy selling on Friday capped off what was a pretty poor week for stocks. Over the past week or so, the S&P 500 backed off from the recent highs above 2100 to close the week down 76 points, 3.63%, to 2,023. The Dow fell 665 points across the week to 17,245 for a fall of 3.71% while the Nasdaq dipped 4.26% to 4,928. In Europe, the FTSE in London was down more than 3.7% over the week. In Frankfurt, the DAX fell 2.55% and the CAC in Paris dropped 3.53%.
So, especially in France, there is every chance that this attack feeds on fears and uncertainty which was growing as global growth gets downgraded, the Fed moves toward its first hike since 2006 and commodity prices crash.
So we could get a decent sell-off in stocks and some decent movements in currencies as traders and investors move money to the sidelines until the outlook clears. The December SPI 200 contract was already pointing to a loss of around 37 points in trade today on the ASX. It could be worse depending on sentiment.
Already in early Asian trade, forex is the only market open and the euro is down a little at 1.0730. The yen has strengthened a little to 123.30 as the forex safe haven plays its usual role. The Aussie dollar is down at 0.7115 under a little pressure as well.
But, the unfortunate reality is these types of things are becoming more commonplace so most reports and analyst notes this morning suggest any moves will be short-lived.
My own analysis suggests the attack has come at a time when stocks were looking extremely vulnerable once again on their own. So I’m not that convinced any stock selling will be short-lived.
That’s particularly the case as crude oil continues to crash and is close to breaking back below $40 a barrel in Nymex terms. Dr Copper also doesn’t like the diagnosis for global growth and is at its lowest level in 6 years along with much of the rest of the base metal complex.
On the data front today, we have the release of motor vehicles in Australia along with Japanese GDP. Tonight we get UK house prices and EU CPI. In the US, it’s the Empire State manufacturing index.
You can find my preview to the week ahead for markets and economies here.
The overnight scoreboard (8.01am AEDT, NB: US Market close is 8am AEDT):
- Dow Jones Industrials -1.16% to 17245
- Nasdaq Composite -1.54% to 4927
- S&P 500 -1.12% to 2023
- London (FTSE 100) -0.98% to 6118
- Frankfurt (DAX) -0.69% to 10708
- Tokyo (Nikkei) -0.51% to 19596
- Shanghai (composite) -1.41% to 3581
- Hong Kong (Hang Seng) -2.15% to 22396
- ASX Futures overnight (SPI December) -37 to 4996
- AUDUSD: 0.7113
- EURUSD: 1.0724
- USDJPY: 122.30
- GBPUSD: 1.5217
- USDCAD: 1.3312
- Nymex Crude (front contract): $40.74
- Copper (US front contract): $2.17
- Gold: $1,082
- Dalian Iron Ore (January): 353 (denominated in CNY)
- US 10-year bond rate: 2.27%
- Australian 10-year bond rate: 2.91%
– Part of the reason that markets are vulnerable is that global trade has been slowing and taking global growth with it. Over the weekend, Deutsche Bank released a dire warning that this global trade and growth slowdown could take years to play out. You read more here.
– It looks to me like the Australian stock market is heading lower. On Friday, my trading self released a report over at Axitrader highlighting that in SPI 200 terms the market looked like it was headed under 5000. The big question is are we on the way back to the August lows?
Here’s the chart:
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
This morning, traders will have to grapple with the issue of what impact the weekend’s awful events in Paris will have on markets and how enduring that impact might be.
The gold market and related mining stocks like Newcrest will be one potential indicator of sentiment. Both have been in free fall recently as markets prepare for a December rate hike in the US. If there is to be a significant flight to quality by investors then gold and the Japanese Yen are possible safe haven assets. Early moves on the currency markets this morning are so far pretty limited.
In the case of gold, the issue is also a little clouded by the possibility that the $US could also get support, especially against the Euro which could be a negative for gold.
However, at this stage one early warning sign to look out for on the Newcrest chart will be whether there is enough buying support to push the RSI in the box below the chart to a close above resistance. That would set up divergence with price and creates the potential for a rally in the stock price starting with a move above the resistance of Thursday’s high at $11.73.
Ric Spooner, chief market analyst, CMC Markets
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