Stocks fall heavily into the close again, GBP and Euro lower

October 15, 2014

Don’t be fooled by what looks like fairly benign closes on European and US stock markets last night because it was actually a wild and crazy night with both regions bourses trading through large ranges.

While the US surge around midday rescued Europe from its lows the late afternoon swoon in the US will see European traders a bit peeved that and likely opening lower. Indeed most traders won’t like the look of a weak close for the second day in a row as a troubling sign from a market structure and technical point of view.

Indeed from a structural point of view the sell-off is troublesome in terms of the outlook for stocks in the days ahead – even though the market is oversold on the dailies.  The Dow ended down 6 points after trading through a 190 point range. The Nasdaq managed to hold onto a fair chunk of its gains up 0.32% to 4,227 while the S&P 500 rose 3 to 1,878 for a gain of 0.17%. To put that in

To put that in context though that is 21 points below the high of the day at 1,899!

Turning to Europe the big economic release was an appalling ZEW survey which tanked from 25.4 to 3.2, yes 3.2, in October. Expectations were also lower falling to -3.6 from 6.9 in September the first negative reading since November 2012. This is not good news for Germany or Europe. – That is bad news for Europe and the global growth outlook. But the soft outcome in UK inflation, which printed no change in September and a year on year rate to a 5 year low of 1.2%, says aggregate demand in Britain is not strong ( no demand, no price pressures) and as a result the chances of a BoE rate hike any time soon

To reiterate that’s terrible news but overnight there was other data suggesting a weakening in the global growth outlook. The soft outcome in UK inflation, which printed no change in September and a year on year rate to a 5 year low of 1.2%, says aggregate demand in Britain is not strong ( no demand, no price pressures) and as a result the chances of a BoE rate hike any time soon reced and the Pound was smashed.

Reflecting this and other concerns of markets at the moment – at least in the minds of traders and investors – the US 10 year Treasury yield rallied 8 points to 2.20%. German 10′s are at an all-time low of 0.8%, down 5 points – that’s a capital gain of 6.27% on Bunds overnight, tiger country. In the UK 10′s rallied 4 points down to 2.13%.

Locally the ASX has had a cracking 2 days this week dancing to its own tune. Last night though it was a rollercoaster ride with the moves in offshore markets with the December ASX SPI 200 futures trading a range of 5,159 to 5,212 – 63 points – before closing down just 3 points at 5,175 bid.

Turning to Asia yesterday and it was an ugly day across the region. The Nikkei hates the fact that global investors love the Yen at times like this so with the twin headwinds of a lower USDJPY (106.95) and US equity weakness the Nikkei finished off a massive 364 points or 2.38%, closing at 14,937. In Hong Kong and Shanghai stocks were much more stable falling only 0.41% to 23,048 and 0.30% to 2,359 respectively. Chinese CPI is due today so this is going to could be another big day for Asian trade.

On currency markets GBP was smashed lower after the inflation data and is at 1.5905 this morning. Euro is lower too buffeted by the weak German economy and it is back at the 1.2650 region. This took the Aussie sharply lower from the ridiculous move to 0.8812 cents yesterday after the NAB survey – did traders not look at what it said about the economy?

The next leg might have begun but GBP is starting to look stretched.

Euro is lower too buffeted by the weak German economy and it is back at the 1.2650 region. This took the Aussie sharply lower from the ridiculous move to 0.8812 cents yesterday after the NAB survey – did traders not look at what it said about the economy?

Long term I’m looking for a move under 1.20 – for the moment though….

This took the Aussie sharply lower from the ridiculous move to 0.8812 cents yesterday after the NAB survey – did traders not look at what it said about the economy?

On commodity markets iron ore consolidated its recent stellar gains with December futures off just 14 cents to $83.11 a tonne. Newcastle coal however is still getting smashed after the recent Chinese tariff imposition and was down another 50 cents to $64.50 a tonne.

Elsewhere the big news internationally is the crash in Nymex crude which fell 4.12% to an incredible $82.21 a barrel. Copper managed a rally however up 1.27% to $3.08 a pound and gold managed to hold above $1230 and it sits at $1,232 an ounce this morning. On the Ags corn was 2.89% higher, wheat rose 0.59% and soybeans were up 1.76%.

On the data front the Chinese CPI is huge in Asia today but equally the release of Westpac-MI consumer sentiment is important in shaping expectations about retail spending and consumption in Australia in the quarters ahead. There is a raft of CPI’s in Europe and Mario Draghi is speaking. Retail sales in the US is going to be big tonight as well.

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