Roight, so markets are going the way I have been expecting although my short USDJPY position is yet to start really moving. Overall however the seismic shift I have been sensing was coming in markets is starting to happen.
Whether its a transition from low volatility to high volatility or just the result of a build up of complacency the reality is that for the moment all the good news is priced in and the proximity of the end of the Fed’s QE and the enduring strength of the US economy has focussed minds on risk not reward.
That is a shift in itself.
As a result it’s been a bad night if you are long stocks with some large falls around the globe. Some say its the big death cross in the Russell 2000 earlier this week, others that Apple’s woes just filtered out through the market and others that geo-poitical risk has risen after Russia passed a law to seize foreign company assets.
Whatever the cause the fact the Dow fell 264 points or 1.53%, the Nasdaq dropped 1.94% and the S&P lost a huge 32 points for a close at 1,966 down 1.62% says the selling was broad based.
My expectation is for a move to 1919 on the S&P 500 and I have a growing sense that we’ll see prices under 1800.
Indeed, the fact that there were some large moves in bonds says that this was an asset allocation move as much as anything as we approach quarter end. In the US the 10′s were down 7 points to 2.5% for a 2.56% capital gain, along with solid falls in german 10′s which closed at 0.93% and UK Gilts at 2.45%.
Traders will be wondering if this is a buying opportunity or the start of something bigger – time will tell but I am still 100% cash in my Super and not rushing to buy.
On the data front overnight there wasn’t a lot of impact of the big fall in durable goods (-18.2%) because of the Boeing impact the month before but once the volatile components were abstracted the print of 0.7% is pretty solid and reinforces the US recovery. Likewise the jobless claims below 300,000 is a good sign.
In Europe the FTSE dipped 0.99% to 6,640, the DAX dropped 1.57% to 9,510 and in Paris the CAC was 1.33% lower. In Milan stocks dropped 1.35% while Spanish stocks were 0.68% lower.
On currency markets the Aussie was helped lower by some verbal intervention from RBNZ Governor wheeler yesterday and it is below 88 cents at 0.8790 this morning and only just over a cent above the lows of 2014. The euro is at 1.2751, Sterling at 1.6314 and USDJPY looks like it is getting set up to move sharply lower and is at 108.72.
On commodities iron ore was poll axed with dec futures down $1.88 to $77.67 just 12 cents off the low for this run. december coal fell 15 cents to $66.10 a tonne.
– Elsewhere on commodity markets gold is becalmed at $1,222 an ounce and silver is at $17.48. Crude is $92.45 a barrel and copper is still at $3.03. On the Ags wheat dropped 1.25%, corn lost 0.91% and soybeans fell 1.3%.
On the data front today Japanese CPI is out and the third read of US GDP tonight will be important.
Otherwise enjoy your weekend and Go Swans