Vantage FX | Stocks plunge, Aussie Dollar falls | 15th November 2012

Markets continued their downbeat tone overnight as data out of Europe and the US was on the weak side of weak and concerns about the fiscal cliff also weighed on traders and investors minds.

Clearly now any resolution in Greece or Spain’s troubles or a compromise on the Fiscal cliff is going to catch the bears and gore them badly but for the moment neither of these positive catalysts seems close at hand so the weak data flow just reinforces the markets negativity.

Speaking of data even though the UK unemployment rate at 7.8% was a little better than expected the increase of 10,800 in the claimant count was a concern and the recent uptick in inflation from 2.2% in September to 2.7% in October has people questioning the BoE’s strategy. Personally I think they want inflation a little higher, or at least they did until the UK Government made the grab for cash from the BOE last week – effectively loosening policy. Elsewhere Portuguese GDP contracted 0.8% on the quarter and 3.4% year on year, Eurozone industrial production fell 2.5% in September (wow!) while in the US PPI was subdued up just 2.3% yoy but down 0.2% in October. Retail sales were flat ex-auto’s but down 0.3% if they are included for October.

So pretty down beat all around and no wonder stocks were under pressure.

Yesterday I wrote that perhaps the S&P 500 was trying to base and may bounce a little. Writing when the market is still open is problematic so when the days gains evaporated in the last hour of trade and the market came under intense pressure I thought – uh oh, here we go. For those of us who have been around for a while that type of end of day move flashes a warning about market structure and sentiment. So I found it interesting this morning to see on Business Insider a quote from Art Chasin of UBS who is one of the NYSE’s “old guys” really intersting. Art pulled out something that he wrote in late 2007,

Longtime readers know of the value we place in final hour action. Stock trading is a bit like playing poker. Throughout the session you can bluff and posture revealing only part of your intentions, hoping to confuse your adversaries. Your only liability is the clock. If you have not accomplished your goal by the time the bell rings, you have failed.

Therefore, old traders see the final minutes of trading as truth time. The bluffing and posturing is cast aside. Folks do what they need to do to get the trade on the tape. Everything up until then is a stage play. That’s why the action in the final thirty minutes both yesterday and Friday is of concern to old fogeys.

Recently I have been writing that I thought this earnings season had the potential to see the market react as it did during Q3 earnings season in 2007 and so far we have seen that. Companies have disappointed on top line revenues at an alarming rate and although things have improved recently overall the market has followed the script – lack of revenue is a big fundamental to ignore. So stocks are off and very close to breaking down for another leg – 1362 is a key level for me as it was last weeks low and also a key fibonacci extension of the recent sell off bounce and sell off again.

S&P 500

As I write it is not looking good as you can see on the chart above but its the close that matters today – just as Art Cashin says.

Stocks

At the close of play in Europe losses were across the board except for Oslo which bucked the trend rising 0.16%. In the UK however the FTSE was off 1.11%, the DAX dropped 0.94% while the CAC was 0.89% lower. Madrid was only off 0.30%. One thing about Europe is that the big strikes and skirmishes across Spain and other centres in Europe in anti-austerity protests suggests to me that Spain is only going to ask for a bailout if it is truly forced to – and it is not apparent yet that Spanish PM Rajoy feels that yet – so the European woes are set to endure.

In the US with 35 minutes to go the S&P has broken my 1362 level down 17 points or 1.24% to 1357. The dow is off 1.29% and the NASDAQ off 1.15%.

In Asia yesterday it was a bit of a mixed bag with the Nikkei essentially flat up 0.04%, but the Hang Seng rose 1.20% while thr Straits Times fell 0.98%. Jakarta was up 0.44% and Shanghai rose 0.37%. The All Ords on the ASX was up 0.15% and no doubt it, like the rest of Asia today, will be under pressure from the weakness in the US and Europe overnight.

FX Markets

Big news in FX overnight has been the move higher by USDJPY as the Yen weakened with the announcement of an election which is widely tipped to see the incumbents lose power and usher in a more stimulatory friendly regime under the Liberal Democratic Party lead by Shinzo Abe. The Reuters reported this morning that Mr Abe called on the BOJ to print unlimited Yen. Recently he called for inflation to be pushed to 3%!

USD JPY

Clearly the USDJPY hasn’t broken recent highs yet but it looks on track to the high 83 region to me and eventually 100 as I wrote recently. It won”t be linear and it will probably not be an easy trade if the Stock Markets continue to sell off but as I also noted recently this is a portfolio position for me now.

Elsewhere on the Global FX landscape GBP came under pressure and EURGBP is back testing the trendline it broke down through. This is usually a good type of level to but up against for a short but if it breaks a move above 82 is on the cards. The EUR had a better day and back above the little two week downtrend but off its highs for the night at 1.2777 sitting at 1.2753 – this rally might have legs for another day or so – strange as that may seem.

AUD USD

For the Australian dollar the strong support seemed to evaporate under the weight of the equally strong selling in the 1.0440/50 region over the past few days. The high of 1.0458  was very short lived and looked like it might have been a London Fix play because it then proceed to trade down from that very point – interesting! Anyway the focus is now back on the bottom of the pennant, sort of, formation which comes in at 1.0362 today. For me a break of 1.0355 would be needed to kick AUD lower and 1.0325/30 is fibonacci support and if that gives way I’m looking for a much deeper retracement.

Commodities

Crude was up and this is being blamed on the Israeli air strikes in Gaza and general tensions in the region. That might be the case but technically it simply looks like Crude has built a support zone from which it is trying to rally even if overall momentum is flat. Crude is up 1% or 85 cents Bbl to $86.21. Gold is unchanged, the Ags were quite but Cocoa and Orange juice were both up more than 3% – I love commodities, so many opportunities for technical or systematic traders.

Datawise In New Zealand we get Business PMI, in Australia we get consumer inflation expectations and New Motor Vehicle sales (I guessing on a lower number based on the 0% financing ads I’m seeing). Tonight we get GDP data in France, Germany, Italy and Spain as well as retail sales in the UK. In the US we’ll be watching CPI and jobless claims data as well as the Empire Manufacturing Index.

Thoughts, comments, queries together with frank and fearless feedback all welcome. I’m happy to answer questions or comments on the comment stream wherever I can

NB: Please note all references to rates above are approximate and should not be used for trade reference.

Comments

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