That old chestnut returns as bad news is good news again

August 15, 2014

Tears for Fears sang song back in the 80’s called “Mad World”. It had a line which I think is apt for this market at the moment.

“When people run in circles it’s a very very Mad world”

That’s the way this market feels at the moment with one minute good news being good news, bad news being good news and good news being bad news for stocks and markets.

It all leads to markets going around in circles and observed volatility remaining low even as instability seems to rise.

SO its hard not to feel cynical when I have to report that last nights trade suggests the return of the paradigm where bad news is good news. It suggests to me that this market is scarier than even I thought it might be. Addicted to low rates and free money it seems stock traders are simply going to ignore the chances of a Fed end to QE in just two months time.

Importantly from a trading point as anyone who reads this note each day would know is that this is not to say I don’t respect the market in front of me. Because as a trader who uses technicals as part of my tool-kit this move – whether in FX, Stocks or Rates – makes sense on a technical basis. Fundamentally however, that’s another story.

Take the Euro for example, my favourite recent hobby horse. Last night we had clear evidence of what a moribund economic zone this is with German Q2 GDP falling 0.2% in Q2, France flatlined and overall EU growth was non-existent. Yet Euro is still in the mid 1.33 region.

The question for traders is why aren’t people selling?

The easy answer is that for the moment the technicals don’t support further selling on a daily basis over recent sessions. markets pause when they either reverse moves or sit in a range for a time. Euro is working off a mild oversold daily situation but the weeklies suggest further weakness.

Time will tell but if the Fed does deliver on it promise to end QE in October and if then rates start to rise in the next 6 months markets could get a huge wake up call.

Turning to overnight trade however we see that in the US the rise in jobless claims – which really just reversed recent lower numbers – saw traders question the jobs recovery helping stocks rise. So in the end the Dow was 62 point higher at 16,714 for a gain of 0.37%, the nasdaq was up 0.43% to 4,453 and the S&P 500 rose 8 points or 0.43% to 1,955.

In Europe the DAX managd to rally even with the weak data up 0.28% to 9,225, the CAC celebrated no growth in France during Q2 by rising 0.24% to 4,205 while stocks in Milan and Madrid stocks fell 0.29% and 0.09% respectively. The FTSE 100 in London was up 0.43% to 6,685.

In Asia yesterday stocks in Shanghai fell 17 points or 0.76% and perilously close to a break back below 2200 finishing at 2,206. The weakness seems to be placed at the feet of the weaker than expected economic data the day before but equally we are seeing a continuation of the strong technical reversal of recent 12 month highs. The Nikkei was up 0.67% on a combination of better global stock atmospherics and a weaker Yen.

Locally all of the above has combined to push SPI 200 futures for September delivery up 23 points to 5517 as it heads toward recent highs.

On currency markets the Euro is stronger than it should be at 1.3366, Sterling has found support at the bottom of the recent range 1.6686 and USDJPY is at 102.45. The Aussie was a little higher rising more than 30 points of the low of yesterday at 0.9317 this morning.

On commodities September iron ore fell 37 cents to $92.88 a tonne while Newcastle coal fell 70 cents to $70.25 a tonne. Nymex crude absolutely tanked falling $2.09 to $95.50 a Bbl, gold is still marching on the spot at $1,311 and silver is at $19.87 an ounce. Copper fell again down 2 cents to $3.09 a point while soybeans dipped 3.16% but corn and wheat had better nights up 1.12% and 1.75% respectively.

On the daya it is going to be a quiet afternoon with the Feast of the Assumption celebrated in Germany, France, Spain and Portugal but in the UK we get Q2 GDP which is super important. There is nothing of note in Australia or Asia save for Hong Kong GDP.

Tonight in the US we get the release of the New York Empire manufacturing index, PPI, TIC (foreign investment) flows, industrial production and capacity utilisation data.

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