The S&P has found support and USDJPY hit its target – time for a bounce?

October 16, 2014

Pesimistic crescendo!

It’s a term I coined in March 2009 when myself and colleagues called the bottom in US stocks when I was Treasurer of Newcastle Permanent Building Society. All it means is that there is blood in the streets and panic all around.

While I am not yet convinced that last night was the ultimate or absolute low in the US stock market the carnage was so acute with the Dow off 425 points at one stage and the S&P 500 at 1,821 before rallying back to close at 1,862. It bounced off a massive trendline as I wrote at Busines Insider this morning and maybe the low is in – for now.

There were so many negative factors overnight it’s hard to pin any one down for the initial carnage. The Greek crisis which has been simmering again burst to the fore once again, the news that a nurse infected with Ebola was on a plane with a fever, weak data in the US and recent weak price action.

But as if by chance once the Beige book was released this morning showing signs of growth in the US economy remain a rumour leaked that Fed Chair Janet Yellen said at a meeting over the weekend that she was still ‘confident in the durability of the US economic expansion despite slowing global growth and turbulent financial markets.’ Convenient? Perhaps but it worked.

Which means poor old Europe has gone to bed looking the wrong way once again. Sure the Greek thing is not pleasant but it was largely US weakness that saw prices tank. At the close the FTSE 100 was down 2.83%, the DAX closed down 2.87% and the CAC was down 2.76%. The periphery of Milan and Madrid.

Locally however the big fall in iron ore overnight, with December futures down $2.55 a tonne back to $80.56, will mitigate against a continuation of this weeks strength. Equally it might explain why the December SPI 200 futures haven’t rallied along with US markets. The ASX website reports that the December contract remains down 42 points at 5,177 bid this morning.

I’m going to buy SPI with a stop under the bottom of the channel

In Asia yesterday the markets were better bid with the Nikkei up 0.92% even though Japanese industrial production tanked 1.9% in August to take the year-on-year rate to -3.3%. In Shanghai stocks were up 0.62% unfazed by the fall in inflation to 1.6% the lowest rate in years. In Hong Kong stocks were untroubled by violence associated with the protests finishing up 0.92%.

On currency markets it was also a wild and crazy night with USDJPY trading through a more than 200 point range of 105.18-107.49. It sits at 106.11 now. Answering the question perhaps on whether we saw the pessimistic crescendo for stocks USDJPY satisfied my targets for this move overnight. Euro was also volatile moving through 1.2623-1.2885 and sits at 1.2781 while GBP is now at 1.5936. The Aussie dollar went along for the ride and is at 0.8782 well off a low of 0.8673 and a high of 0.8860.

My target was a move below 105 and I’m out of my short now – perhaps a little early but out nonetheless.

Euro was also volatile moving through 1.2623-1.2885 and sits at 1.2781 while GBP is now at 1.5936. The Aussie dollar went along for the ride and is at 0.8782 well off a low of 0.8673 and a high of 0.8860.

On commodity markets as noted above iron ore fell heavily and Newcastle coal managed a small rally with the December contract up 35 cents to $64.55. Crude had a small loss of 0.16% to $81.71 a barrel but this belies the fall under $80 at one stage last night. Copper finally reacted to the deteriorating global outlook and fell to $3.00 a pound and gold is at $1,240. On the Ags wheat dipped 0.5%, corn lost 2.35% while soybeans rose 1.45%.

On the data front new loans in China is the key releases for the Asian session but we also get another speech from RBA Assistant Governor Debelle as well as the RBA FX transaction which might be interesting to look at. Tonight CPI for the EU is important as is the trade balance .

Also tonight in the US we get Philly Fed, NAHB sentiment, TIC flows and industrial production data.

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