What a night with stocks smashed lower, the USDJPY under intense pressure the Aussie hammered by the weak economy that was so in evidence in yesterdays GDP data while GBP has rallied hard on the back of data that is not as bad as many feared.
It is going to be a very interesting last couple of days into the end of the week with the ADP employment survey released last night suggesting a weak non-farm payrolls on Friday night.
Of Stocks, of falls and of weak weak data
I have been expecting stocks to fall for a few weeks now and indeed stock pundits need to be careful what they wish for with many lamenting the fact the S&P hadn’t had a 5% retracement for ages. Well after last nights fall of 22 points or 1.37% to 1,609 the S&P 500 is just under 5% off from the high last month.
But in many ways I/we here at GlobalFX, think that this stock reversal is only really just getting going and as noted yesterday the targets are 1,591 and if that breaks 1545.
Elsewhere in the US the Dow was down 217 points or 1.43% and the Nasdaq fell 1.28%.
The key point behind the weakness in the US stock markets, besides following the Nikkei lower after PM Abe announced his latest plan, “the Third arrow” which seemed to circle round and hit him in the backside, is the weak data. And the data is weak in a way that really undermines the idea that the economy can cope with any sort of Fed “tapering” of its bond purchases as it seems to be communicating it is about to do.
The ADP private sector employment data was lower than expected printing 135,000 jobs against expectations of 165,000 suggesting the markets current expectations of a +165,000 non-farm payrolls on Friday is way over the top. Factory Orders were also weaker than expected printing just 1% against 1.5% expected and the Beige Book noted that the sequester is starting to bite. Indeed Bloomberg re-quoted NY Fed boss Bill Dudley and what he said back on May 22nd and he is dead right,
I don’t really understand very well how the tug-of-war between the fiscal drag and the improving economy are going to sort of work their way out
Time will tell – but in the mean time the Fed goes on about tapering and the economy slows – not good for stocks, not at all.
In Europe stocks also were slammed now doubt both because the US markets were under pressure but also because the Data in Europe (click on the pic to enlarge) continues to be weak even if its not as bad as it has been.
At the close the FTSE was 2.13% lower even though the Markit Services PMI for the UK was the one genuine bright spot in the data releases last night printing 54.9 up two full points from last month and much better than the 53.0 expected. GBP caught a solid bit on the back but the FTSE could not.
On the continent the DAX was 1.20% lower, the CAC fell 1.88% and strangely the peripheral markets of Milan and Madrid fell 0.96% and 0.86% respectively.
I don’t have the space here this morning but check out your charts on European markets, further downside beckons.
Aussie Dollar, weak growth and interest rate cuts
That GDP data in Australia yesterday was as bad a set of numbers you can ever get for only just missing the estimate of the market – if you scrutinise the data table from the ANZ at right what you will see is an economy that is seeing the retraction of the mining boom and a lack of domestic demand to fill the void. Indeed the fact that net exports were such a positive contributor to the overall GDP return of 0.6% for the quarter and without which the economy would have produced negative growth (I know this is a bit mischievous given any other partial could have moved as well) speaks volumes for the fact the Australian economy is in strife.
It remains my un-abiding belief and has been since I saw the HILDA survey from back in 2009 on debt and Australian households share by age and intention, that the debt burden carried by Australian households will inhibit the efficacy of interest rate cuts in the future and as a consequence inhibit the transmission mechanism from rate cut to economic growth. As a result my belief since 2011 that rates in Australia would head to 2.50% has been adjust ed down to 2.00-2.25%.
So it is no surprise then that the Aussie Dollar got absolutely smashed last night making a new 12 month low at 0.9509. Initially after the data the Aussie held up very well – surprisingly so given the weak data. I sold on the rally into the 40’s on 96 and in the 20’s on 96 again and rode it down as the Yen strength kicked AUDJPY lower and increased the pressure on the Aussie across the board.
AUDJPY and AUDUSD both look like they have further to go – while on the hourly charts things look like they may rally a little the focus is now on 92.95 and 0.9400/20 respectively.
Yen and Sterling the big FX movers
I was short USDJPY yesterday looking for a test down to the uptrend line for this big long term trend which we effectively saw overnight. I had a take profit in at 98.97 but it missed by a point then bounced up to the 99.30’s before falling back and I closed at 99.02 adhering to the old adage of respecting trendlines unless or until they break. I might sell some if it gives way today.
On the Euro as noted it is becalmed and I am still watching the formation of 1.28-1.3260 box. A break either side would be decisive. GBP was a big mover overnight and I was asked on Twitter yesterday what I thought I said that it is having a big old counter-trend rally within an overall move back to 1.42 which regular readers know is my long term core view. But I also noted that I thought GBP had a couple of big figures topside a large part of which we saw last night. So where to from here? A break of 1.5420 gives another 150 points but I am inclined to fade this move from here.
Australian trade data might get people going today after yesterday and then we have German factory orders before both the BoE and ECB decisions and jobless claims in the US.