What a night – huge moves all over markets as position liquidation and no doubt some new trend following positions pushed markets into heavy reverse from what has been the case lately.
Gold sold off an amazing 9.35% or $140 now to sit at $1347 as we write. We have updated our thoughts on gold this morning in a separate post and it needs to hold $1312 if it is not to cascade even lower. Silver was also under intense pressure pressure falling more than 12% to $22.69 oz and hitting the 1.38 price projection we set only yesterday. Crude was also under pressure falling 4.36% to $87.31 and Dr Copper was off 2%.
In FX markets the Aussie has absolutely been poll-axed off more than 2 cents from yesterday’s highs trading at 1.0305 this morning for a fall of 2.02% day on day which is huge for developed FX markets. USDJPY is also 200 pips lower at 96.71 from a high of 98.70 for a 1.09% fall. Euro is down 0.72% to 1.3036 and Sterling is off 0.44% to 1.5277.
In the US stocks were fairly crushed with the Dow down more than 200 points for a fall of 1.44% to 14,651. The Nasdaq is off 2.40% and the S&P 500 fell 33 points or 2.07% to 1,556. In Europe the FTSE fell 0.63%, the DAX dropped 0.41%, CAC fell 0.52% while in Milan and Madrid stocks fell 0.96% and 0.33% respectively.
The primary cause for the massive dislocation in markets and what is being reported as the biggest two day fall in Gold since 1983 ( as if stats like that matter!) is the weaker than expected growth Chinese growth for Q1 which was released yesterday. I have to confess I had not recognised how much the market was hanging on these data so when Q1 GDP came in at 1.6% QoQ and 7.7% YoY I thought that was little weaker than the 1.9% and 8% expected but not too bad. How wrong was I and it became apparent within minutes as the Aussie Dollar came under selling pressure that the 0.3% miss was being extrapolated to a 1.2% annual miss and the annualisation of 1.6% was only 6.4% which is way below the target of 7.5% for this latest 5 year plan. There was also disappointment in the subcomponents such as domestic demand – but nowhere in the data was there a rational excuse for the type of market reaction that we have seen in the past 18 hours since the data was released.
That is not to say the market is wrong, rather it is instructive of just where bets were placed. Last night’s Empire State Manufacturing index was unexpectedly weak dropping to 3 from 9 and the NAHB Home Builder index also fell to 42 from 44. Clearly the market had banked a global rebound in 2013 and positioned accordingly. But German trade data, a downgrade by the IMF of US growth, the potential for the Fed to pre-emptively withdraw stimulus and the weaker than expected Chinese growth have clearly combined with what is becoming a usual April/May market swoon since 2010 to see a reversal of fortune across the board.
The chart above some up our point really well – what we have here is the Citibank economic surprise index which is a measure of the data flow and whether it is better or worse than the market expected. In the middle of March it was +15 last week it was -13. That is a swift fall and it is no wonder markets have reacted. Indeed China is still positive as at the end of last week with a print of 11.6 but well down on the 58+ print from mid-march.
So the moves might have been fractious and a bit fraught but if you are a fundamentalist then they are well grounded in economic reality.
For those who like a bit of eye candy here are some charts.
You can see the big reversal in the Aussie from yesterday’s high above 1.05. The Aussie was already under pressure from Gold’s fall and was then hit hard by the Chinese data. I missed my chance to sell at 1.0466 as I was shorted USDJPY at the same time and Euro as well and thought they were all correlating – bad choice clearly and a lesson in picking the right trades given how far the Aussie fell compared to my fairly useless Euro short.
Looking at the price action in the Aussie now and it looks more likely than not that the Aussie is going to test the 1.0250/60.
USDJPY fell back to test and then inside the box we highlighted yesterday as a target and it seems more likely than not that the Yen is going to continue to rally against the USD and the other crosses at the moment. The low this morning of 95.79 is the key for us and a break of that will open the way for a move down to the recent lows around 92. As far fetched as that may seem not for a second did we think gold was going to do what it did overnight – in time yes but not in 24 hours – so lets never say never at the moment and trade with the flow.
New Motor Vehicles and RBA minutes in Australia will be of interest today before inflation data in the UK and Europe and then the German and Eurowide ZEW survey tonight. In the US inflation data along with Housing starts, building permits and industrial production data are released.