The perfect storm of worries hit markets in Asia hard yesterday as the Chinese property tightening moves leaked into the market along with the weaker than expected non-manufacturing PMI. Both of these things were known yesterday morning and we had commented on them but markets had not had time to react and trade on the back of them.
As a result Chinese shares were absolutely smashed yesterday with the Shanghai composite down 3.67%. While the chart below covers the MT4 tradeable China A index you can see just how poorly the Chinese sharemarket was relative to everything else as at 6.30am Sydney time this morning.
The most amazing thing about this chart is that it doesn’t show how weak the Aussie was at one stage yesterday afternoon – more on that later.
Overnight though eyes turned to Europe and the debacle of Italian politics. Pier Luigi Bersani (that’s him looking frazzled from last week) threw down the gauntlet to Beppe Grillo saying it was time for him to deal with Bersani’s PD party or it was off to fresh elections.
“Now (Grillo) must say what he wants, otherwise we all go home, including him,”
He could of course be missing the point entirely that Grillo may want that. While his newly elected party room colleagues seem as green as a fresh shoot Grillo seems to have been under-estimated because of his comic roots and it is not beyond the realms of reason that another election and a chance to annihilate the old order in the new election is not part of his strategy.
Either way the Italian mess continues to simmer in the background and is weighing on bond markets and stocks in Europe as well as the Euro.
Last night Milanese stocks fell another 0.85% while Italian bonds rose toward their highest levels in 3 months. Unhelpfully the Euro’s political elite who were holding a meeting pressed on with demands for more austerity across the zone reinforcing both their disconnect from the populations and also the continued disenfranchisement of these very same populations.
For us Europe is a simmering pot due to boil over again sometime in 2013.
Looking at the Euro it is actually managing to stage a late rally toward the close of New York markets which is pretty impressive in a technical sense but the range of 1.3031 to 1.2980 isn’t that large in the grand scheme of what we have been seeing recently. GBP had a better day though up 0.44% to 1.5096after another big figure range with a low at 1.4998 and a high of 1.5102. As you can see in the chart below GBP is very oversold and a rally or a pause in the fall would still be consistent with our view that the Pound is headed lower in time. It seems that support is coming back in the Pound via the EURGBP cross which make enormous sense.
In Japan putative BoJ Governor Kuroda was aggressively talking up the likelihood of massive monetary stimulus saying that,
It would be natural for the BOJ to buy longer-dated government bonds in huge amounts…But the central bank also needs to scrutinize market developments at the time, as well as the potential drawbacks.
USDJPY needs to take out the recent high to kick on rather than continue the consolidation pattern it is in.
Turning to the Aussie we have said for a few days now that we expected it to fall toward the 1.0090/1.01 region for a few days now and it traded down to a low of 1.0115 overnight after cascading lower on the day. Our pivot point analysis came in very handy yesterday as it highlighted 1.0207 as the crucial point but also highlighted that we’d rather sell because this level was below our two very short term moving averages we watch. It was the same for the Euro. Unfortunately we decided to short the Euro instead of the Aussie for a change and only captured relatively few points relative to the big crash in the Aussie after the weaker than expected building permits and the Chinese open.
In the end we actually lost a a few points on the Aussie buying at 62 with a stop at 51 looking for a move higher. Thank goodness we had the stop in place because the breach of 50 saw heavy selling enter the market driving the Aussie into the 20’s and eventually to the low of 1.0115. Miraculously though the Aussie sits at 1.0196 as we write this morning.
As you can see in the chart above however the Aussie found support near the trendline that matches up all the lows since the middle of last year and which also satisfies our “round turn” chart pattern we often see in many markets and many time frames. Indeed such an approach makes us a lot of money. Now with regard to the trend line support sure it is in a slight down trend but it looks fairly solid for now. Candlestickwise this recovery is also very strong and there is a chance of a bounce, which we’d think capped, into the 1.0250 and perhaps a little higher.
Looking at stocks we see that in Europe things were a bit mixed with the CAC actually rising 0.27% while the FTSE fell 0.51% and the DAX fell 0.21%. Spain was also higher up 0.72%.
Across the pond in the US as we approach the close with 45 minutes to go the Dow is up 0.17%, the Nasdaq rose 0.29% and the S&P 500 is up 5 points to 1523 for a gain of 0.32%.
On commodity markets Nymex crudes slide continues with it dropping 0.67% to $90.07 Bbl. Oil has been in a down trend for a couple of weeks now as the US dollar has been strengthening and as this has combined with a reappraisal of the path of global growth this year and next particularly in Europe and more recently China. This was summed up nicely in a Reuters report this morning,
“Economic sentiment has shifted, and we’re also seeing the first stages of long liquidation in the oil market. Money managers had increased their exposure (to oil) a lot over a 10-week period,” said energy analyst Tim Evans at Citi Futures in New York.
Gold and Silver did not move much daya on day at $1,569 and $28.48 and ounce respectively. Wheat collapsed 2.38% while Soybeans rose 1.84% and Corn was rather boring in comparison off just 0.17%
The RBA is unlikely to cut rates today and it is also unlikely to be overly dovish in our estimation given recent comments from Governor Stevens. So this could be supportive for the Aussie Dollar and hit bond futures. On the data front the AIG performance of services index is to be released along with the current account and retail sales. Then it is into the raft of Services PMI’s that are due out around the rest of the world. starting in China today in our time zone then Portugal, Italy, France, Germany, UK and the Eurozone tonight before the ISM non-manufacturing PMI in the US.