Stocks lower, bonds rally and the US dollar is looking strong – times a changing

July 28, 2014

Here’s the thing – stocks get all the headlines but it seems even as the S&P 500 made a new all time high last week there is still a level of disquiet growing in the big macro markets of bonds and currencies .

As the screenshot from Bloomberg of the US 10 year rate shows there is a real chance of a massive range break and rally which would really tell us there is a big shift in markets happening and a monster disconnect between stocks and bonds.

It hasn’t happened yet but it is certainly something to watch.

Looking at the week ahead then there is plenty in the US which will either confirm or deny a move lower in US rates.

The FOMC meeting concludes Wednesday and while a further taper is expected an signs that rates will be rising sooner than expected will impact markets. Likewise the release of non-farms on Friday is going to be huge.

Anyway back to Friday night and we see that for all the geopolitical events happening around the world at the moment it was stock specific details which knocked US shares lower on Friday night with a triple digit loss for the Dow. Key to the decline appears to have been disappointing earnings news from VISA and a big drop in Amazon.

At the close the Dow was down 123 points at 16,961 for a loww of 0.72%, the Nasdaq fell 0.49% to 4,450 while the the S&P 500 lost 0.50% or 10 points to 1,978.

Across the Atlantic except for Spain, where stocks rose 0.25%, the major markets were all lower. German IFO was not healthy which hit continental shares hard but in the UK the FTSE fell 0.43% while the German DAX dropped 1.53% the CAC was 1.81% lower and the FTSE MIB in Milan was down 0.91%. News over the weekend out of Germany (Vice Chancellor Gabriel) that heavier sanction on Russia should be instituted won’t help sentiment when trade opens this afternoon Asian time.

On the ASX the September SPI 200 contract is 8 points lower at 5521 which will continue to keep the physical ASX200 constrained below the important 5600 level for the moment.

Like the physical the SPI 200 has solid overhead resistance but it looks like a near term high – and a tradable one at that – is in place for the moment. As ever we respect the line unless or until it breaks.

Asia had a great day Friday with the Nikkei up 1.14% to 15,548 while the Shanghai index rose 1.04%. The Hang Seng was fairly quiet up 0.31%. Nothing of note is out today so expect cautious to negative trade in Asia today.

On currencies markets, like bonds, traders are sniffing the winds of change and the US dollar was stronger across the board. This morning the Aussie sits at 0.9395 while the Euro’s drift continues at 1.3428 this morning. Sterling looks like it could be in for a big fall and is at 1.6975 while USDJPY is at 101.79.

Sterling looks like it could drop as much as 200 points and is sliding back below the very long term uptrend it broke through recently.

On commodity markets iron ore is nothing if not volatile at the moment bouncing $1.14 tonne to $94 while Newcastle September coal was 45 cents higher at $68.85 tonne.

Elsewhere August Nymex crude sits at $101.89, gold is at $1,307.30, silver $20.75 and copper $3.23 lb. On the Ags wheat was up 1,75%, corn rose 0.41% and soybeans was 0.39% higher.

On the data front there is nothing to get the week moving until the release of market services PMI and pending home sales in the US this evening.

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