Friday saw a little bit of a recovery from the savage moves of the week as their was a big option expiry on Friday in the US. Overall though it was a week of carnage with stocks off sharply, bonds up materially and the US dollar sweeping all before it.
This week is a bit of a vacuum for data but there are 7 Fed Governors talking which are each probably going to be analysed, diced and sliced for any hints on the Taper and its timing. They start tonight so it straight out of the gates.
All quiet on the market front
Friday could have been a huge night given what had occurred over the previous day since the FOMC announcement and Bernanke’s Presser but instead it was fairly quiet after a weak start and then recovery in the US. The Dow was up 41 points or 0.28%, the Nasdaq fell back a little down 0.23% and the S&P was up 4 points or 0.24%.
As you can in the S&P 500 chart above the price on Friday finished about mid range – suggesting indecision – but also basically bounced off the second of the two important trendlines. So the S&P has not broken wide open yet the risk is that it does if it closes below 1560 on a daily basis.
Interestingly the US 10 year bonds were sold heavily rising to a close on Friday of 2.53% but just like the S&P there is support very near and I think that the high 50’s low 60’s on 2% is a good place for the sell off to end and a reversal to occur.
Certainly Fed Governor Bullard and the press release that the St Louis Fed put out on Friday saying the taper was a bad idea, or at least the communication of it together with an article from Fed Mouthpiece Jon Hilsenrath saying that the market has misinterpreted the full meaning of the Fed’s message particular by ignoring the reference to inflation support some bond buying this week and also certainly contributed to the recovery in stocks on Friday but with 7 Fed speeches and hardly any decent data globally this is going to be an interesting week.
In Europe stocks closed mixed and lets face it they are just going to follow the que of the US markets if a half day behind this week.
The Fed got all the headlines last week but it was to China that those of us in what you might loosely call the professional markets were looking across the week. The massive uptick in the Shibor rate, think cash or 90 day bill rate in Australia or Libor elsewhere, and the quiet reluctance of the PBOC to intervene to take the pressure off the banking system was an interesting and amazing thing to watch.
In the end on Friday the PBOC eased pressure a little and the rate dropped back but this seemed more a response to one of the Big Chinese Banks reportedly almost falling over amidst the pressure. This is an interesting time for the PBOC to be forcing banks to think hard about the policies they are using and the lending they are doing.
Xinhua reported yesterday that their is ample liquidity in the Chinese banking system and the pressure is coming from the shadow banking sector which reinforces my thoughts that, as I wrote in my Free Weekly Newsletter on Saturday, I believe very strongly that this is a policy that comes from the Top of the Chines government and as such is part of a re-calibration of Chinese lending and the Chinese economy.
It has huge implications for the global economy and specifically for Australia, the Australian Dollar and the outlook for our miners – so watch this space.
Aussie finds some support as the selling turns to the Euro and the Pound
The Aussie isn’t exactly the darling of the FX universe again but having fallen 12 cents in a month and with Specs at another all time high based on CFTC COT data it makes sense for a bit of rotation to other pairs and the Euro is most likely as is the Pound. Readers know I was bearish both these pairs last week and we have had a good run and I was also short EURAUD late week to take advantage of the shift in sentiment between the pair. My sense is this will continue this week.
Indeed I am actually long Aussie this morning and will see how that goes over the next couple of days.
The 4 hour chart of the AUD above and my process suggests higher prices and also gives a clear stop level as you can see.
Crude was lower falling a massive 1.52% and is now back under $94 Bbl after the two day sell off at the end of the week. Gold recovered a little and sits back at $1292 and Dr Copper was 1.14% higher.
IFO in Germany and the Chicago and Dallas Fed manufacturing surveys are about all there is.