Stocks roar, bonds tank and currency traders, well….sleep

August 19, 2014

You can’t make markets move if they don’t want to and while there were massive ructions in stocks and bonds overnight currency traders in the big pairs really did very little.

Certainly the Euro reversed a little of its recent pickup but it is still in this indeterminant period where it is either basing or resting before the next big fall. Readers of this column know that I am in the latter camp on a longer term fundamental basis but recognise the Euro is washing off a small oversold period on the daily charts.

On the dailies the parameters are still the 1.3320ish to 1.3430ish range but as you can see in the weeklies above the Euro has now spent a number of weeks below the 200 week moving average – it’s just a matter of time.

Looking at stocks and bonds it was a fairly positive night for the former and a negative night for the latter with an easing of geopolitical tensions as Ukraine talks continue and as ISIS had it grip on the Dam in Iraq shaken loose.

At the close the Dow was up 175 points or 1.06% to 16,838. The S&P 500 rose almost 17 points or 0.85% to 1,972 and the Nasdaq traded to its highest level since 2000 at 4,508 up 0.97%.

If bad news was good news last week then it would be disingenuous to say today that stocks rose because of the strength of the NAHB home builder confidence system which leapt to 55 – a seven month high. Rather if you look dispassionately at the moves in stocks and bonds it really feels like it has more to do with ISIS and Ukraine than any actual market or economic induced factors. Equally though the big sell off in bonds – see below – suggests that some traders thing they have come too far too fast, at least for today.

In Europe the catch up from Friday’s move happened early and stocks keep moving higher. The DAX ripped 1.68% higher to 9,245, the CAC was 1.36% higher to 4,231 while the FTSE was positive but lagged up 0.78% to 6,741. Stocks in Milan and Madrid were 0.82% and 1.28% higher respectively.

It all adds up to a positive day ahead for the ASX with overnight futures trade showing that the September SPI 200 futures were up 25 points to 5,554. There is also a raft of important company reports today including Arrium, BHP Billiton, IAG, QBE and Toll.

There is no avoiding this move in bonds overnight and the potential ructions that it might cause or signal under the waters of the pond that is global markets. Clearly last night there was some sort of shift in global bonds with sellers across the board.

US 10 year treasuries rose 6 points to a still low 2.39%, German Bunds were absolutely poll axed losing 6.66% of their capital value with a sell off of 6 points to 1.02% – ugly! UK 10 year gilts lost 10 points to 2.43%. Italian bonds sold off 2 points and Spanish bonds were 8 points higher. Now clearly these rates are all super low but at these levels the capital volatility of a 1 point move is huge.

– In Asia yesterday it was fairly quiet so we’ll get plenty of catch up today. Shanghai was up 0.55%. We are waiting on Japanese trade data today which will give a further window into the enduring efficacy, or not as may be the case, of Abenomics.

On currency markets the Euro is down a little at 1.3363, USDJPY is back at 102.57 and Sterling is sitting at 1.6726. The Aussie has hardly moved and this morning remains fairly steady at 0.9318.

On commodity markets iron ore’s reversal of its reversal off the lows seems in train with the break of an important technical level overnight and a fall of $1.30 a tonne to $92.33. September Newcastle coal was also down but a more modest 35 cents a tonne to $70.30.

Nymex crude fell 79 cents to $96.56 a Barrel while gold lost another $6 to $1,298 an ounce while silver closed at 19.58. Copper rose 1 cent a pound to $3.11 while the Ags saw an amazing one day fall of 7.49% for soybeans and a 7% fall in oats. Corn rose 1.37% and wheat was much more quiet at 0.47% higher.

On the data front it is another quiet one locally with only the release of the RBA minutes to trouble the scorer. Of course its a heavy day of company reporting as noted above. Offshore UK and US CPI are the key out turns on the data front and will inform expectations about the path of interest rates for both the BoE and FOMC.

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