Yesterday’s action by the Turkish central bank was so obviously an own goal that it wasn’t funny and that is what we saw overnight with the Lira back around the levels seen before the surprise interest rate hike to 12%.
The impact was that the Asian markets positive take on the surprise which saw stocks and the Aussie rally and gold retreat was unwound overnight as markets focussed once again on the negative.
Indeed things are so negative that the Fed’s decision to cut the bond buying program, the Taper, by another $10 billion had little real impact. The taper of $10 billion was exactly what the transition to a new Fed Chairman in Janet Yellen needed. There was some conjecture yesterday that the Fed might only taper $5 billion but this would have been to play a weak hand and Bernanke’s last decision needed to be strong – either $10 billion or nothing.
The impact of this decision was to knock stocks a little lower but for the Dow and S&P at least it is only back to the lows of the day as the intra-day specs hoping for no move were taken out of positions. At the close the Dow is down 189 points or 1.18% to 15,739. The Nasdaq is off 1.15% while the S&P 500 is 19 lower for a fall of 1.03% sitting at 1,774. Importantly when I look at my charts the futures are at 1,766 just 6 points above an important break level. If 1760 gives way watch out on many different markets as risk goes really off.
In Europe the FTSE dropped to a 6 week low and at the close was 0.43% lower, the DAX fell 0.74% while stocks in Milan were down 0.57%. Strangely the CAC in Paris and the IBEX 35 in Madrid rose 0.30% and 0.17% respectively.
Locally on the ASX Futures the march SPI 200 contract is down 64 points to 5109 bid. On the bonds the 3’s are up 9 points to 97.15 (2.85%) while the 10’s were also up 9.5 points to 96.045 (3.945%).
For those of us who have spent a lot of time in Currency markets the reaction of the Lira in returning to where it was pretty much before yesterday’s hike was not only not surprising but rather it was expected. The impact was that a fall in the Aussie was also likely which is what occurred overnight after an aborted run to 0.8825 before falling 100 points to a low of 0.8725. The Aussie sits at 0.8729 this morning down 0.52%.
The Aussie has had an ugly outside day in the past 24 hours which will have seriously dented any bullishness.
I sold some above 88 cents yesterday but again it was a short term specy trade so non-market factors (homework) dragged me away from the screen so I unfortunately didn’t catch all of the downdraft as the Aussie broke the little hourly uptrend and then stepped lower.
Equally if you look on the daily charts you can see the step lower over the past few weeks which is likely to continue to harm market sentiment.
The interesting thing in terms of my trading style and system is that the Aussie failed at my fast moving average for the past 2 days and it simply can’t run higher unless or until that gives way. On the downside the recent lows are also important levels to watch.
The other big mover was USDJPY which continues to benefit from the emerging market ructions and the risk off trade. USDJPY fell 0.85% to 102.07 this morning and trade below the low of 101.80 last night opens the way for a big move. The Euro sits at 1.3658 while GBP is at 1.6560.
On commodities the fear has helped Gold rally back above resistance and it sits at $1267 this morning.
The recent high of $1278ish is the new resistance for gold but it is clear that it is benefiting from the risd off meme.
Minsky tells us that volatility transitions and Mandlebrot tells us it clusters – so the risk reward trade for gold at the moment is long.
Crude fell 0.18% to $97.23 Bbl while Dr Copper scarily fell again and now sits at $3.26. On the Ags corn was down 1.04%, wheat lost 2.56% and soybeans were 1.26% lower.
On the data front today we get Australian import and export price indices as well as the next read on the HSBC Chinese PMI. Tonight we get unemployment in Germany as well as European confidence numbers. Jobless claims, pending home sales and consumption data are out tonight in the US.
Have a great day and good hunting