by Greg McKenna filling in for Chris Becker
Macro Wrap
Well that didn’t last long – yesterday’s better price action in Asian equities, US equity night futures and other risk assets gave way to more worries about Greece and the pending euro implosion. The Australian market appears to have been the more prescient yesterday as it did not take part in the ebulllience and closed down 0.2%. The futures are currently pointing to more bad news today with the SPI Futures off 79 points or 1.90% as I write.
Markets have been under pressure for a while now and the chart above from Bespoke Investments shows just how bad things have been financially. Also, since the Greek election the performance of markets has been nothing short of terrible and unless or until there is a sustainable resolution markets will remain under pressure. But that is becoming more unlikely as this mess drags on – at least until we see a possible reversal of the electoral fortunes of the majors parties in a month. So its not too panicky to say that with big techincal breaks in many markets things could still get dire for equities and investor sentiment.
To wit, oil fell again overnight and I remain committed to the view that this current market sell off is not just about Greece and Europe, it is about a rerating of growth and in particular of growth in China and the BRIC’s more broadly. But looking at developed market I wanted to show you a chart I put in the ASX Daily yesterday – I’ve updated it for last night’s price action.
The chart is of the S&P 500 daily over the year and the technicians out there can see the clear double top and some suggest that the red line I have drawn is a head and shoulder pattern – Notre Dame style. Yesterday I said the zone it targeted was 1277-1300 and last night’s fall of 20 points and close of 1304 is almost there. Personally I reckon it looks likely to head to 1200 at some point.
Data wise in the US, the Philly Fed Index of manufacturing was well short of expectations printing -5.8 versus the 10 that the punditry expected. This was the first shrinkage in 8 months. Elsewhere jobless claims were essentially unchanged at 370,000 versus 365,000 expected but the Conference Board did say that the Leading Indicator of growth fell for the first time in 6 months. So with the euro afire there was nothing in the data to hold up equities or stop bonds rallying.
Bonds:
- With the mess in equities there was nowhere else for US 10 year Treasuries to go but down and they rallied 7 points to 1.69%. German 10 year bunds likewise fell rallying 6 points to close at 1.41% as did UK 10 Gilts which rallied 4 points falling to 1.83% this morning.
- Spain and Italy seemed to escape, somehow, the turmoil and both markets were only up or down a point or two and Greece 10’s only sold of 42 points to close at 27.66%. How Spain got its bonds away in this market is truly baffling.
Currencies:
- The US Dollar (in USD index terms) is still trying and so far failing to break the highs of earlier this year but when it does it is likely to push substantially higher. My target on a break of the high would be 83.92 and then 85.24 as you can see in the fibonacci projections in the chart below.
- Like the USD the euro pushed lower but didn’t push on with it and it too remains very close to my target of 1.2660ish to have reasonably satisfied it in broad terms so there could be a consolidation period ahead. Once the low breaks though, assuming it does, the euro should have a sharp decline.
- The Australian dollar has taken a dip back under 0.9900 this morning on the news of Spanish banks are being downgraded by Moody’s and it too is consolidating recent downside momentum. Without a circuit breaker it seems only a matter of time before the Aussie dollar heads lower again.
Equities:
- The Eurostoxx 50 fell 1.3% and is now down 9.3% over the past month sitting at 2146.91. In the UK the FTSE 100 was off 1.24% with the rest of Europe, except the Swiss market which was flat, off between 1.1% to 1.6%.
- The US equity markets were under the pump as I noted above with the S&P chart. At the close of play the Dow was down 1.24%, the S&P 1.51% while the NASDAQ fell 2.10%. Facebook’s IPO could be excellent timing.
Commodities:
- Crude fell another 0.27% based on the WTI benchmark and sits at USD 92.56 bbl
- Gold (USD) has now respected and bounced off the support I highlighted a couple of days ago, reinforcing it, and climbed 1.76% overnight to USD 1574.38 oz.
- Our friend Dr Copper was belted again again (not a typo) falling 1.65% and like other growth benchmarks has now also fallen off a cliff.
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