Here's your 20-second guide to what Australian traders will be talking about this morning

Quick Recap: For the third day in a row stocks have been under pressure in the US and Europe. It seems the convergence of a number of peripheral drivers combined to see another acute bout of risk aversion which saw the S&P 500 drop 2.11% – its worst day since 2014. That’s hurt the local market as well with the SPI 200 September futures down 78 points after yesterday’s big fall on the physical market.

Raiko Shareef, BNZ’s Wellington-based currency strategist wrote this morning that after Shanghai stocks collapsed into the close yesterday, Kazakhstan dropped the peg on its currency, which promptly lost 25% of its value. This is putting further pressure on other pegs such as the one in Saudi Arabia while the political instability in Turkey is keeping pressure on the lira. And, he says, don’t forget “North and South Korea exchanged artillery fire across the DMZ, in what is being called the most serious exchange since 2010”.

So it’s no surprise that risk aversion heightened overnight and traders sold stocks, bought bonds, bought gold and kept pressure on the Aussie dollar.

What is mildly surprising though is that the US dollar is weaker. Not against the yen, that is normal in times of increased investor uncertainty. But it’s weak against the euro which is up above 1.12. Part of that could be the comments, in a speech in Asia yesterday, by Minneapolis Fed president Narayana Kocherlakota that perhaps the Fed needs a higher inflation target. That implies less aggressive rate hikes.

Elsewhere, the Greek PM called the snap election many expected. No one really cares though, too many other things to worry about now.

The overnight scoreboard (7.13am AEST):

  • Dow Jones -2.06% to 16,990
  • Nasdaq -2.82% to 4,877
  • S&P 500 -2.11% to 2,035
  • London (FTSE 100) -0.56% to 6,367
  • Frankfurt (DAX) -2.34% to 10,342
  • Tokyo (Nikkei) -0.94% to 20,003
  • Shanghai (composite) -3.39%
  • Hong Kong (Hang Seng)-1.77% to 22,757
  • ASX Futures overnight (SPI September) -70 to 5,166
  • AUDUSD: 0.7335
  • EURUSD: 1.1238
  • USDJPY: 123.36
  • GBPUSD: 1.5691
  • USDCAD: 1.3080
  • Nymex Crude (front contract): $41.14
  • Copper (US front contract): $2.329/li>
  • Gold: $1,152
  • Dalian Iron Ore (September): 444(it’s denominated in CNY folks)

Now the news. The market, traders, and investors are all under acute pressure at the moment. At a macro level we know that uncertainty is poison for short-term thinking, trading and returns. That is exactly where markets find themselves now with the ructions in China and other emerging markets, uncertainty about the global economy, potential deflationary pulse from oil and worries the Fed’s long signaled rate hike could be the trigger for some selling in US and other stocks. Markets exponentially discount the information they have, which means all of that is getting front-loaded to the here and now. But with uncertainty still high, it feeds on itself, which means volatility clusters.

– That’s important because it doesn’t yet “feel” like we have seen the sort of cathartic pessimistic crescendo we need for traders fears to abate. Rather it feels like this is a slow motion crash in stocks. Yesterday the Hang Seng in Hong Kong “officially” entered a bear market (down more than 20% from the high). The DAX in Frankfurt has been quietly crashing and last night the big fall in the S&P 500 pushed prices down to a critical technical level all traders will be watching with a test of the 4-year uptrend channel.

SPX500Weekly (Go Markets, MT4)

A break would be a big negative signal to many traders across the globe. Of course the line needs to break to provide the signal first, and best practice is to respect the trend unless or until it breaks. The fact traders will be watching this line could actually lead to some buying.

– Speaking of trends, the local market has been drifting lower for a few weeks now and is down around 500 points (including last night’s futures move) from the early August high. Yesterday’s price action was simply terrible with a massive 1.7% fall for the ASX200 index. Chris Pash summed up the action yesterday afternoon, writing that: “A series of results, including the return to profit of Qantas, did nothing to help investor sentiment. The Commonwealth Bank, which went ex-dividend Tuesday, was down 2.7% to $76.15 and the ANZ bank was off 2.38% to $29.13. Energy stocks collectively lost more than 5% in value, with Woodside Petroleum down $3.56% to $31.69 and Santos more than 7% to $5.61. Among the miners, BHP lost 3.1% to $24.38 and Rio Tinto 2.45% to $49.41.” Ugly. It looks like another down day today based on the futures.

– Summing up the action in the US specifically last night, Akin Oyedele highlights that the current stock market leaders are under pressure. “The Dow and S&P 500 are negative for the year. The so-called ‘FANG’ stocks — Facebook, Apple, Netflix, and Google — were some of the biggest losers, and helped send the Nasdaq more than 2% lower. Biotechs also suffered big losses; the iShares Nasdaq Biotechnology ETF fell nearly 3% to a three-month low. The Vix, which gauges market expectations for near-term shifts in the S&P 500, surged 15%.”

– On bond markets, CommSec’s Craig James said that “US long-term treasury prices rose again on Thursday (yields lower). Traders were monitoring another fall on the Chinese share market, latest US economic data and news of fresh elections in Greece. After the latest Federal Reserve minutes, traders were also less confident of a rate hike in September. US 2-year yields fell by 2 points to 0.657% with US 10-year yields down by 6 points to 2.07%.”

– In forex land, the market has been massively long US dollars and short euros which might help explain why the euro is outperforming at the moment as traders re-evaluate the chance of a Fed hike in September. As silly as it sounds that forex players are thinking about the Fed, with everything else going on, the reality is that this simply reflects the fact that bets have become a little skewed recently. So money is coming off the table. Bets are also skewed in the Aussie with massive shorts. But it is not benefiting because it lies at the heart of the turmoil in commodities, China and risk aversion.

– On commodity markets, Nymex crude fell to $40.21 a Bbl at one point overnight before recovering a little with the expiry of the front contract. Gold is rocketing however, up above $1,150 overnight. It’s benefiting from the uncertainty.

– On the data front, there is no respite today with the release today of the flash manufacturing PMIs around the world. The Chinese one will be of particulalr interest to traders. Likewise, what the Shanghai stock market does, where the RMB fix is and any other government pronouncements in China today will also be watched closely.

And now from CMC Markets’ Ric Spooner is today’s Stock of the Day

Wesfarmers

Wesfarmers unveiled a solid profit result yesterday. Good enough to produce a 1% rally on a day when the ASX 200 index was down 1.7%

This chart has been playing straight out of the pattern traders’ song book. The June low at $38.44 neatly completed an ABCD move where the CD swing hit the commonly used Fibonacci projection at 127% times the length of the AB swing. This was followed by an exact 78.6% Fibonacci retracement of the latest rally which bottomed on Tuesday at $39.51.

All this looks pretty positive. However, to maintain this rosy outlook, the price should ideally stay above $39.50 now or certainly above the $38.44 low. Next Tuesday could be the first big test. Wesfarmers will trade ex its $1.11 dividend then. If it can hold above $39.50 ex dividend, there could be some upside to follow.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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