Markets dodge a bullet as stocks recover. Aussie lifts back above 93 cents

October 1, 2013

It could have been much worse overnight with the Asian and European markets under pressure and US markets opening weaker as the US Federal Government seems to be just hours from shutting down as the two sides of American Politics square off over Obamacare and the Debt ceiling. The timing is midnight East Coast US time which is about 6 hours away Eastern Austalian time.

But the important thing was that it was actually an up day for the S&P 500 which opened weak, very weak actually hitting a low of 1675 but it rallied from that point. So at the close the  the S&P 500 was off just 10 points or 0.58% at 1682, the Dow was down 0.84% with a fall of 128 points and the Nasdaq fell 0.28%.

In Europe stocks felt the weakness of Asian markets and the concern about the US shutdown along with the tremors that continue to reverberate through Italian politics and weaker than expected German retail sales (0.5% versus 0.8% expected). The FTSE and DAX fell 0.78%, the CAC was 1.05% lower, Spanish stocks fell 0,46% while stocks in Milan were 1.20% lower.

In Australia the Futures are pointing to a stronger open this morning after the up day on the S&P and the technicals aren’t terrible even though the market broke the big uptrend from the lows of June and that yesterday was the worst day for the ASX 200 in a couple of months. But the reality is that this was such a steep uptrend that it had to break eventually. So I find myself thinking big deal.

As you can see the SPI200 CFD on Vantage FX hasn’t yet breached the slow moving average (blue line) which comes in today at 5192 – this remains key support short term as is the lows of the last 24 hours which was previously the highs in August. So watch the 5200 region as well. If the lower level gives way then we might be in for a decent retracement as we have been thinking might happen and quite frankly a move to 5000/5030 seems a reasonable target. Certainly a tradeable one but while this holds its just a retracement – a pause that refreshes as they say.

And that is the big question Could markets actually not worry about the Debt problem.  As noted above the S&P 500 opened weak but then recovered which begs the question that after all the crises over the past 5 or 6 years and with all the Sovereign and Governmental  issues since 2010 there might just be a bit of pessimism fatigue in markets. It’s a question I ask seriously because what really is the big deal about a US Governmental shutdown?

Sure the personal effects can be devastating for the employees involved but ultimately the two sides will butt heads and something will be sorted out in the end – there is no other choice if these Pollies don’t want to carry the can for the big dip in the US economy that will result if they don’t get things sorted and which will ultimately be felt by them at the next round of congressional elections.

So what is the big deal if we know there is going to be a resolution at some point and this is just noise in an overall environment of improving global growth. So I’m not getting too bearish just watching my levels and if they break they break and then I react accordingly – but overall this seems more like noise than a trend change.

Turning back to other markets on FX  there was a bit of a reversal of fortune for the Yen and the US dollar with USDJPY up 0.37% to 98.28 while Euro (1.3528) rallied 0.37%, the Pound (1.6190) was 0.46% higher and the Aussie dollar (0.9324) came back from a low of 0.9278 yesterday. These moves make no sense unless you consider that it was actually an “up” day for the S&P 500 so less worrying for the “risk on or off” trade.

I’m wondering if the Aussie made a low after yesterday’s little bounce. I guess the answer to that can only be known in time but like the SPI 200 above the Aussie is still holding above my slow moving average which tells me that the trend is far from changed on the dailies and then of course the weekly charts are still suggesting that the AUDUSD is headed higher.

The dailies are still pointing down however but the key is 0.9260. While it holds the Aussie looks ok and while the Aussie holds above 0.9210/30 this is just a garden variety retracement.

On Commodity markets there was less fear with Nymex Crude down 0.52% to $102.33, Gold fell 0.75% to $1328, copper dropped a cent to $3.31 lb while the Ags were at it again with corn down 2.75%, wheat off 0.66% and soybeans down 2.94%, Sugar rose more than 4%!

On rates markets it was fairly quiet all things consider with US 10 year treasuries down a point at 2.61% but intraday trade mapped the moves on the S&P. 10 year Bunds are at 1.78% and Gilts are 2.54%.

Closer to home the better than expected performance of the S&P saw the SPI 200 contract on the Sydney Futures exchange rally 10 points overnight to 5231 on the December contract. On interest rate markets the 3 year bond contract was down 2 points and the 10 year was off just 1.5 points. It just reflects the fact that Asian Mondays over react sometimes as we saw last night with the US recovery.

On the data front of course the RBA is out at 2.30pm this afternoon but before that we see Korean export data, the AIG performance of Manufacturing index in Australia which has been a shocker for so long the hope is it might start to recover and then Tankan in Japan and NBS Manufacturing PMI in China (even though its a holiday). Tonight is Markit manufacturing PMI in Europe and across the rest of the globe with the ISM also out in the US.

A big day beckons.

Have a great day and good hunting

Greg

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