The risk off feeling around markets that is coming from the looming US Governmental shutdown and the increasing belligerence of certain elements of the Republican Party seems certain to dominate trade early this week overshadowing the Chinese liberalisation of the Yuan and interest rates and the announcement of the Shanghai Free Trade Zone competing over the weekend. The collapse of the Italian Government only serves to underscore a period of uncertainty at the moment.
Looking back to Friday it was a continuation of the weakness we saw for most of last week on the Stock Market with the Dow falling 70 points of 0.46%, the Nasdaq fall 0.14% and the S&P 500 fell 7 points or 0.39% to 1692. According to the chartists in technical terms if the S&P 500 falls under the Friday session low this week then a bigger fall is in the offing. Given the weekend vote to delay Obama’s health law for 12 months the chances of more weakness this week have grown.
In Europe the FTSE fell and the GBP rallied on BoE Governor’s hawkish interest rate comments. At the close of play the FTSE fell 0.8%, the DAX and CAC were largely unchanged and the Milanese stock exchange was knocked lower again as it became clear the Government was collapsing posting a fall of 1.27%. In Madrid stocks fell in sympathy, down 0.48% at the close.
So stocks are looking increasingly vulnerable and the S&P 500 has broken the fast moving average but found support at the slow moving average as it often does – overall if it takes out Friday night’s lows this week it is headed toward 1660/65 and below the trendline support at 1648.
The ASX CFD you can see in the Vantage FX chart below has outperformed the S&P 500 recently but remains vulnerable and is likely to get dragged along for the rise with a break of 5240 would open the way for a big fall – respect the trendline until it breaks though.
On FX markets as discussed above Sterling rallied back above 1.61 and sits at 1.6246 this morning in Asia. The Aussie remained and remains under pressure from the risk off meme and sits at 0.9314 this morning. Euro is at 1.3493 which is remarkable and shows how far the global financial system has come since 2010 when you take the collapse of the Italian Government into account. Which leaves the Yen and in a world where the US Government is close to shut down, the Italian Government has collapsed then the Yen is the member of the Big three which should benefit most intrade this week.
So the Aussie fell again on Friday night and it sits this morning right on the middle of the bolly bands and looks like it is biased lower when I take the fact that it has broken my fast moving average and also the MACD indicator as well in what looks like a search for support.
It looks like the rally above the 38.2% retracement recently above 95 cents has failed and Aussie is targeting 0.9269.
On the data front this will be a big week as the new month brings with it a raft of fresh data releases.
Today though we see the BoK manufacturing BSI in Korea along with industrial output, New Zealand releases Building permits and Japanese Industrial production and retail trade is released. In Australia the TD monthly inflation gauge is out this morning along with private sector credit which I will be watching closely given recent house prices rise in Australia. In China we get the release of HSBC manufacturing PMI and then in Europe tonight we see import prices and retail sales in Germany, PPI and CPI in Italy, Mortgage Approvals in the UK and trade Data in India before the Chicago PMI and Dallas Fed manufacturing index.
A big week beckons so good luck and good hunting.