Copper tanking and Aussie dollar lower suggest rerating of global growth

March 12, 2014

What a difference a week makes.

New highs last week and now as copper and iron ore tank, as Nymex crude is back below $100 bbl it is as if all the potentially bad (I might say realistic) news out there has hit at once.

What is driving this is clearly sourced in the catalysing event that was the weak export data from China over the weekend but equally investors are starting to mistrust the recent rallies in stocks – as a behavioural finance guy this for me is key to why things have turned.

So in this context it is important that the data in the US overnight supported thoughts that the economy is slowing with wholesale sales in January falling 1.9% which is the biggest drop in 5 years while inventories grew. Both these data point to slowing growth. So at the close the Dow was 0.41% lower, the Nasdaq dropped 0.63% and the S&P 500 lost 9 points to close down 0.49% to 1,868.

Fighting this trend has been fraught with danger.

Even the big dip recently saw a violent reversal and a push to new highs so selling this market is a Madman’s game.

But as the chart above shows there is a chance that the worm has turned.

1850 then 1830 are the key levels – I’m buying puts.

In Europe it was more mixed with the FTSE down 0.05% but the DAX up 0.46% after trade data showed both stronger exports and imports. The CAC fell by almost the same amount, down 0.48% while stocks in Milan and Madrid were mixed up 0.39% and down 0.31% respectively.

Locally in overnight trade on the ASX the March SPI 200 contract is 25 points lower to 5390 bid.

On global FX markets the Aussie dollar sentiment appears to have turned this week which Governor Stevens and his colleagues will be pleased and the Aussie is back below 90 cents again this morning off 0.58% to 0.8963.

For weeks now I have been fighting the Aussie rally.

Last week I got distracted with non trading activities to do with my other businesses and consulting and had too much leverage on in my positions – not aussie but EURJPY. So I took a bath and while I am short Aussie again it’s a reminder that sometimes even those of us who have been doing this for decades can do stupid things and forget simple lessons.

Anyway the point is I’m not as short Aussie as I would like to be.

But as the chart above shows the Aussie is now closing in on a little support line from the lows – 0.8940 is the level and if it breaks it will be a nice place for me to pyramid I think.

Euro is off a little down 0.11% to 1.3859, GBP down 0.17% to 1.6616 while USDJPY is also down losing 0.28% as a little bit of risk aversion takes it back below 103.

On commodities the falls in both copper (-2.64% to $3.03 lb) and Nymex crude (-1.51% to $99.59 Bbl) speak volumes for the changed sentiment toward growth. Gold is at $1347.60. On the Ags wheat is up 2.83%, corn rose 1.27% and soybeans fell 0.39%.

On the data front today we get the Westpac Consumer Sentiment release along with lending data and then Korean trade, Japan large manufacturing index and the BOJ monthly economic survey. European IP will be interesting tonight.

Have a great day and good hunting

Greg

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