Before we get into Friday’s weak jobs data from the US and the impact on markets it is worth noting that while it is only early Monday as I write there is a chance that some comments from Chinese Premier Wen over the weekend cause some further pressure on equities and risk assets in Asian trade today. Premier Wen is reported to have said:
Currently, property tightening in the current property market remains at a critical stage. We must unswervingly implement the tightening measures and make controls against speculative housing demand a long-term policy…We must continue to curb speculative property demand, prevent disguised property easing policies and untrue signals from misleading [the market].
We’ll see, but this is an indication of exactly what the Chinese are not trying to do with any further stimulus and suggests, at least on the face of it, that further stimulus measure will require a weaker economy meaning China runs the same risk as other nations of falling behind the curve. Or, at least, the markets perceptions of it.
To Friday night’s non-farm payrolls, which came in at 80,000 for June, lower than the 100,000 the market had expected and showing a material deterioration with the pace of US job creation over the past 3 months compared to the previous 3 months. Put it together with the ISM data and we have a picture of a US economy that is on shaky ground.
The net result was that equities were lower and growth and demand related commodities, which were already under pressure from a stronger US Dollar were hit hard by the weak data. As silly as it might seem that the US Dollar stregthened after it’s weak data the reality is that scared money simply hit the knee jerk button and headed to the usual safe-haven which is the US Dollar.
At the close of play the Dow was 0.96% lower to 12,772, the S&P 500 fell 0.94% to 1,354 while the NASDAQ dropped 1.3% to 2.937. It was an impressive rally late in the day as traders squared up into the weekend. The data last week, however, was not weak enough to get the hawks at the Fed over the line yet for more QE so there is little hope of Fed Chairman Bernanke riding to the rescue just yet with buckets of money meaning the circuit breaker has to be either better of much worse data and markets pushing too far too fast to the downside.
In Europe the FTSE fell only 0.53% to 5,663 but the continental European bourses were under much more pressure falling 1.92% in Germany for the DAX and a 1.88% fall for the CAC in Paris. Madrid fell over 3% and Spanish bonds are back up toward 7% again.
The pressure is on tonight’s EU Finance Minister’s meeting to sort out the details from the deal sewn together two Friday’s ago. After a week where investors moved on from the immediate euphoria and focussed on the weak economic data coming out of Europe and the rest of the globe the risks are there for further disappointment in Europe to weigh on markets.
On Commodity markets it was a sea of red with the CRB down 6.34 points to 286.92. Crude was already under pressure after its reversal the previous day and ended up closing down 3.7% to USD 84.11 Bbl. Gold and Silver were both under pressure as well today falling 1.73% and 2.22% respectively. Copper was also lower falling 2.45% to 340.45. Other base metals too were under pressure suggesting that markets are getting genuinely concerned about the prospects for global growth and the data needs to improve for the market’s psyche to change.
In currency markets it was about the safe haven bid and the USD was stronger across the board with the Dollar Index rising 0.6%. The EUR was under intense pressure and the AUD likewise broke down to a low below 1.02. I’m seeing reports that some of the EUR’s weakness and the USD strength was about comments from ECB President Draghi that the economy faces downside risks – but we knew that from the night before so it sounds like an excuse as opposed to concrete reasons.
Just briefly in other news:
- EU Finance Ministers are meeting tonight and hopefully can give the market something concrete
- Italy approved €4.5 billion in further spending cuts.
- Dow Jones reported that “European Central Bank executive board member Benoit Coeure poured cold water on hopes the central bank might again intervene in bond markets to quell rising borrowing costs, saying such a move would be paradoxical and not adapted to the current circumstances.” Helpful as usual.
- The Swiss Economy Minister has called on the SNB to continue to protect the EURCHF floor at 1.20. Luckily the SNB can print as many Swiss Francs as it wants.
- The Lend Lease CEO called for lower rates to lift property market – Oh please!
Lets have a look at some of the markets we follow.
Crude: As I noted Friday the candlestick from Thursday’s trade was “ugly, just ugly” and so it was that Nymex crude fell further in trade Friday. This $84 region looks important short term but crude is below the first Fibonacci support at $84.41 and the next support is the 50% retracement at $83.05. Crude looks a little over done on the 1 and 4 hour charts but still looks biased lower.
EUR/USD: The EUR’s price action last week in a big picture weekly context was shocking, fully engulfing the previous week’s rally with a close below that of the previous week. This is the lowest close for the EUR since the end of june 2010 when it was recovering from its fall to 1.18. A Fibonacci projection is now for the EUR to head back down toward 1.18. Last Friday I failed to mention that one of my systems was short on the break of 1.24 – small posi, big stop due to recent volatility. We’ll see how this on goes as it has no target. A close below 1.2280 will get another system short.
AUD/USD: The trend following system is still long and will cut out if the AUD falls below 1.0122. Subjectively though the AUD looks like it remains a market favourite, as you can see in the crosses. However it does look like the AUD is headed lower and notwithstanding the late bounce, the move below 1.02 on Friday night was a sign of a deeper retracement in the offing as I said all week last week.
ASX 200: This one looks biased lower and should open weaker this morning. Having been unable to break up through the 4160 region and kick to the next level this one looks like it’s back toward the other side of the range. First stop is support at 4050
Data today sees the release of the CPI and PPI in China while we have the ANZ job ads here in Australia. I’ll also be watching the German trade data on imports but particularly exports given the relationship between Chinese leading indicators and German exports.
Here is today’s data and you can click here for the full week’s calendar.
And here is how the markets closed at 6.30 am Saturday Morning courtesy of AVAFX
Have a great day.
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Macrobusiness Morning is the daily market wrap and personal view of Greg McKenna. It is offered as an example of the process he has been following for more than 20 years each morning. When referring to his trading systems, he means his own, not those of Macro Investor.
Please remember these are not recommendations for you to trade these are my views and I have my risk management tools and risk parameters that you do not have access to. Thus, this blog is for information only and does not constitute advice. Neither Greg McKenna nor MacroAssociates has taken your personal circumstances, objectives or financial situation into account. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.