UGLY night for stocks – Yen and US dollar make solid gains

October 10, 2014

This horrible whip saw price action continues with a monster selloff in US markets after they slept on their ebullience from the night before.

The actual catalyst is hard to pin down although the more than 6% los on coal stocks is easily slated home to the increase in Chinese tariffs. Rather it still seems that traders are finding it hard to justify valuations to themselves.

Is Fed language going to fix a slowing global economy? Can it fix a German economy slipping inexorably into the mire and is QE still going to end this month? As highlighted last week trader know what happens when the Fed stops buying bonds – stocks fall.

It’s a continuation of the recent theme I’ve been highlighting about the increase in volatility and the fact that when volatility transitions from low to high it becomes sticky for a time – Minsky and mandlebrot writ large.

It doesn’t mean a crash is around the corner but it does mean that naturally traders take a little cash off the table. As the great investor Kenny Rogers taught us, “you gotta know when to hold em, know when to fold, know when to walk away and know when to run.”

Anyway at the close the Dow is down 335 points or 1.97% at 16, 659. The Nasdaq is off 2.03% to 4,378 and the S&P 500 has lost 2.08% or 41, yes 41, points to 1,928.

Again Europe proved it is in the worst time zone on the planet missing out on much of what happened in the US. German trade data was weak in August with exports and imports both much weaker than expected. So at the close, the DAX was up 0.11% at 9,005, the FTSE was down 0.78% to 6,432, the CAC dipped 0.65% to 4,141 and stocks in Milan and Madrid fell 1.34% and 0.63% respectively.

Locally the SPI 200 December futures reversed yesterdays strength falling 54 points to 5,225. It’s been whipsaw trade lately and with the US markets closing on their lows there is going to be a lot of negativity in the Australian market, and around Asia today. Could we see some bottom fishing? maybe but there is an old traders adage about what happens when you pick bottoms….

In Asia yesterday Nikkei weakness reflected Yen strength to a large extent. But equally the foreign buying of Japanese assets data released showed that Japan and the Yen remain safe havens with the latest weekly purchases the highest since 2011. That means if this stock market volatility heads into a higher range the yen will strengthen further putting additional pressure on the Nikkei.

Elsewhere in Asia the release of Chinese new loan data will be very important for the region today. But the Shanghai, 2,689, is likely to come under pressure regardless today. Likewise the hang Seng’s 1.17% gain yesterday is likely to be reversed.

On currency markets there was a massive reversal of fortune overnight with the weak German data and rethink on the Fed kicking the US dollar and the Yen higher. The Aussie is back at 0.8781 which is incredible given it traded up to 0.8898 in a rather strange reaction to the weakish labour data yesterday. Euro is also way off the high at 1.2684 from 1.2791 high and GBP is at 1.6111 also more than 1oo points off the high of 1.6226. USDJPY is at 107.90.

107.45 the key level.

On commodity markets cola is off on the news of China tariffs but iron ore is up with December futures at $78.21. NYmex crude tanked again – telling you what is actually driving sentiment – with a loss of 2.58% to $85.06. Copper is resisting the falls for the moment at $3.03 while gold can’t really get any traction and is still in the low $1200′s at $1,224. On the Ags wheat fell 2.36%, corn rose 0.41% and soybeans rose 1.16%.

On the data front BoJ minutes should float past fairly easily with the focus on China. In Australia we get ther release of home lending data and then there is second tier data in Europe and the US tonight.

All eyes are on the price action though – will the recent pattern of reversal see the Dow rally or is it about to break?

Social

Free Daily Market Update

Live Spreads

SymbolBidAskSpread

Spread

Sign up to the latest forex news and daily FX trading setups

Get started with a FREE $50,000 demo account