Another volatile night as the adage that volatility begets volatility is proved right once again. Apple shares closed at a 15 month low on the back of earnings from one of its component makers. The drop of more than 5% was matched by other tech firms with the sector under pressure. Bank of America was also down after its earnings and Dr Copper fell 3.58% as concerns about the state of the global economy made the rounds of the market and got traders thinking that maybe free money is only good for stocks and isn’t actually the panacea for a global economy still carrying debt up to the eyeballs.
Indeed Reuters reported this morning that Copper was sharply lower after European car sales fell 10.3% in March suggesting that things really are bad for the continent and that the “second half rebound” was going to struggle to be delivered.
This is the way the economy and markets have gone for the past few years and I think it is worth having a look at a piece written my one of my Colleagues which posits why we are in this cycle of hope and disappoint with regard to the economy and in particular the US economy.
Our view here at GlobalFX has been and remains that the world is awash with debt and that final demand will remain subdued for some time and as such all the central bank liquidity infusion will do is goose stocks higher while your average Joe and Josephine just go about their daily lives and try to make ends meet. So it is instructive when you look at earnings reports and you see that profit targets are hit but that revenues are down. Managers are becoming good at cost control but demand is still not what it once was.
Which leads to the point of all of the above – stocks and risk assets are at a fragile juncture. Every hiccup for the last few months, indeed last 6 probably, has been met with dip buying – we saw it again yesterday – but if the economy doesn’t deliver then….mmm
Anyway at the close the Dow fell 138 points or 0.9%, the Nasdaq dropped 1.8% and the S&P 500 fell 22 points or 1.4%. In Europe it was even uglier with the FTSE off a fairly mild 0.96% but shares on the Continent fared much worse. The DAX dropped 2.34%, the CAC 2.35% and Spanish stocks dropped 1.83%. In Milan it was a more subdued fall of 0.96%.
The chart above is the weekly chart of the S&P 500 and based on my reading of the chart using my usual indicators and system if the S&P drops down through 1520 then we will be able to call a top for this run. It’s that time of year for the April/May hiccup and clearly the market is getting nervous at the moment with Gold’s fall spooking many in other markets who also though they were or are bullet proof. So watch 1520.
On FX markets the Aussie came under renewed selling pressure completely reversing the recovery of the previous day and then some. The high of 1.0394 gave way to a run to 1.0339 late afternoon before a recovery to 74/75 before the Aussie then dropped a cent to the low of 1.0274 before recovering to 1.0297 at the moment. As you can see in the chart above of the daily Aussie price action it has been fractious trade in the Aussie dollar and the daily charts are suggesting a test of at least 1.0250 and if that breaks then back under 1.02.
The Euro was also hit hard reversing the rally of the night before trading through a 1.3200- 1.3000 range and it now sits at 1.3032. A breach of last nights low opens up a move to the 200 day moving average at 1.2918.
USDJPY was higher again which suggests that the overall currency/commodity move was as much about the US dollar as it was about concerns over growth. Indeed the crash in gold has perhaps reinforced the US dollars place as the only credible safe haven in a world of volatility and Europe’s economic malaise and Japan’s own debasement of its currency means there is no alternative. The Aussie dollars fall should also put the ludicrous notion that it is a safe haven to bed once and for all as well.
Turning to commodities it is worth noting that Crude tanked even though the EIA stats showed a sharp fall in crude inventories. WTI was down 2.30% and it is back below the 200 week moving average at $87.49 for the first time since mid last year. It looks like crude is going to head toward $81.30 /50 and we’ll see how it looks there. Gold couldn’t hold onto its gains and sits at $1370 oz and silver was under pressure falling 1.36% to $23.10. Corn dropped 0.45% while wheat and soybeans rose 0.21% and 0.60% respectively.
NAB Business is out today but otherwise it is fairly quiet until Jobless claims and the Philly Fed manufacturing survey tonight in the US.