MH17 crash hits markets as stocks and Aussie dollar fall and bonds rally

July 18, 2014

Only one thing matters this morning as market price action overnight has been dominated by the impact of the crash – apparent shooting down – of Malaysian Airlines flight MH17 over the disputed eastern region of Ukraine.

This along with the launching of the Israeli ground offence in Gaza and the lock-down of the White-house over a suspicious package (since found to be a false alarm) weighed on US markets into the close.

Before launching into a recap of overnight trade it is worth making a couple of points about markets at times like these.

First the market reaction overnight is entirely natural and it is important for investors and traders not to over react or panic out of their positions.

Equally important however and somewhat in contrast to the first point is that at a time of extended low volatility we have seen this is exactly the type of “black swan” or Caribbean butterfly that could cause bigger market ructions – particularly given the face off in Ukraine between the west and Russia.

So traders will be alert, some alarmed and risk money will be, has been, taken off the table.

Turning to overnight trade at the close the Dow is down 0.94% or 161 points to 16,977, the S&P 500 lost 1.19% or 24 points to 1,958 and the Nasdaq lost 1.42% to 4,363.

This is possibly – technicals would argue probably – a catalyst for lower stock prices in the US as the S&P 500 chart below shows. Futures are trading below the 200 day moving average for the first time in 3 months.

European stocks tanked once the news hit but were already in the red for the day and at the close the FTSE was 0.69% lower at 6,738, the DAX lost 1.07% to 9,754 and the CAC in Paris was 1.21% lower at 4,316. Milanese and Madridian stocks fell 2.22% and 1.18% respectively.

Locally the impact has been that the SPI 200 September contract fell 27 points to 5,454 this morning and it is unlikely to be a good day given the risk off event overnight and the big fall in iron ore down $1.44 tonne.

Bonds were big movers overnight highlighting the risk off nature of this move with with US 10-year Treasuries rallying 7 points to 2.46% for a new 2014 low. Bonds in Europe and on the SFE here in Australia have also rallied with the 3′s up 6 points and the 10′s up 8 points.

– On currency markets the Aussie is sitting at 0.9347 at the moment holding in relatively well all things considered. Euro is largely unchanged at 1.3526 and Sterling is at 1.7097. But it was th currency market safe haven – the Yen – which had the biggest move with USDJPY down to 101.17 this morning.

The Aussie key support is the 0.9320ish region if it breaks look for another 100 points.

On commodity markets traders have leaped into gold and oil on the back of last nights news. Gold rallied $17 to $1,316. Nymex July crude is up $2.43 to $103.63 after looking like it was going to break back below the $100 mark earlier in the week. Copper closed at $3.21 lb, corn was 0.33% and wheat ripped 2.37% higher while soybeans were down 1.05%.

On Australia’s bulk commodity markets as noted above September 62% Fe iron ore swaps fell $1.44 tonne to $96.88. Newcastle coal however had its first up day in weeks rising 60 cents tonne to $67.90.

Data is light today and the market will be focused on breaking news and in particular tensions between Ukraine and Russia which is the key point about whether this is a one or two day wonder or really a black swan type event.

House prices are to be released on China, EU current account is out and tonight the US University of Michigan consumer confidence data is out.

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