Stocks tank and Yen bolts higher as fear rising amidst weak US data

February 4, 2014

A big rout on markets last night would not have been unexpected to Vantage FX readers as we have been talking about the likelihood for ages now and noted yesterday that the S&P 500 chart was the most important on the planet.

So whether you think it’s a perfect storm or Perfect storm or just a necessary reaction to complacency the reality is that a lot of traders have clearly been caught unawares and fear has risen. Because at the close the Dow is down 326 points or 2.08% at 15,373, the Nasdaq is off 107 points or 2.60% and the S&P 500 is 2.28% lower for a loss of 41 points (not a typo) at 1,740.

The big story of the night was that as Emerging markets burn the manufacturing PMI in China over the weekend was at a 6 month low and then in the US the ISM Manufacturing PMI missed badly printing 51.3 against expectations of 56. Chris Weston of IG MArkets told BI over Twitter this was the biggest miss since 2008.

So traders will naturally be wondering whether this is a buying opportunity or the start of something bigger but its worth remembering the points we made last week about Minsky and Mandlebrot and what they tell us about the stickiness of volatility.

But lets face it last nights price action can be summarised in a few words – Bish Bosh Bash. The S&P has crashed straight through the trendline we have been watching for a while now.

As we discussed yesterday,

“As you can see the S&P 500 last week found support on the trendline that has been supporting it since late 2012. The S&P 500 has already broken my fast mving average which suggests a move toward the slower one normally that sits at 1738 (futures terms) this week. I think it takes out the line and heads to the slow ma – but only a break of the slow ma suggests lower – but if it does then its 1675 as a target. “

I’m not normally a trumpet blower – it just tempts the fates – but it is worth remembering we have been talking about this for some time so this is not a panicky cahange of focus to lower levels but consistent with my view held fr some time and constantly discussed.

So not only did the S&P fall but it also took out my initial target at 1,738 in MT4 terms and the focus, regardless of bounces, turns to 1,675 and then 1,625.

In Europe the Markit manufacturing PMI’s were actually pretty good. Germany hit a 32 month high, Spain a 65 month high and even France is less bad hitting a 4 month high even though it is the only major continental country in the contraction zone. But when markets go off and fear rises there is little place to hide except the Yen and Gold. So European shares were hit hard. The FTSE did reasonably well losing only 0.68%, while on the continent the DAX fell 1.28%, the CAC fell 1.39% and in Madrid and Milan stocks fell 1.97% and 2.63%.

On the Sydney Futures Exchange this carnage on global markets is reflected in a 95 point fall in the SPI 200 futures which are sitting at 5048 bid this morning. The bond boards were only up 3 and 3.5 points on the 3’s and 10’s respectively which is a little unusual given the selling in stocks and the rally of 6 points in US 10’s to 2.59%.

On global FX markets the Yen swept the floor with all comers as USDJPY crashed to a low of 100.76 and it sits at 100.91 for a loss of 1.09%. It had to happen. Yen buying amidst market turmoil has been de rigueur for years, decades almost – and so it was overnight with the yen pushing USDJPY down to 100.76.

Strong support can now be found around the 100 level or just below which is where the 200 day moving average sits.

The Euro benefited from the better data and is up 0.27% at 1.3528 but Sterling is under pressure down 0.86% to 1.6303. The Aussie dollar is having an amazing night all things considered hardly moving at 0.8749 this morning as the fear passes it by. Emerging market currencies such as the Turkish Lira, which sits at 2.28 this morning, came under pressure again also.

On commodity markets gold rallied to $1,265 but sits back at 1,257.40 at the moment.

I’m long gold because I thought it would benefit from the sell off I saw coming in stocks. Clearly however I should have just sold the Dow because Gold is under performing. Sure its up 4% since the start of January and sure its well off the multi-year lows around $1180 and sure it looks biased higher.

But I would have thought it would be in the $1275 range by now.

I’m staying long, stop under $1233 target $1325.

Nymex crude fell 0.91% to $96.60 and copper lost another cent to $3.20 lb. The Ags proved that not everything is correlated with wheat up 1.39%, soybeans rose 0.78% and corn rose 0.40%.

On the data front the RBA decision is out this afternoon at 2.30pm and the discussion and statement which will accompany the decision has no doubt been somewhat complicated by the market rout- but they are unlikely to move and will probably reflect some satisfaction with the Aussie dollars fall and no fear of inflation in Australia.

Offshore it’s fairly quiet but the ISM New York will be watched closely along with factory orders as to whether or not they reinforce the overall ISM last night. In Europe its fairly quiet with Italian CPI and EU PPI.

Have a good day, keep the Tin Hat on and good hunting

Greg

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