Last night’s price action was a continuation of what we talked about yesterday. Investors are worried about slowing global growth that is insufficient to force the Fed’s hand on QE3. So its up to earnings and data to do the heavy lifting and that is just not happening. Eurozone industrial production was better than expected but it is still very weak (see in brief below) and the zone is probably on track to print a contraction in GDP for Q2 2012.
So we saw stocks under pressure and bonds bid once more. Northern European bonds for nations such as Finland, France, Holland and Germany were all bid in European trade, hitting the lowest levels on record and Finland has now joined the elite club of issuers of negative yields on 2 year debt. Two Years – just think about that – investors are genuinely worried about the return OF their capital to park their money in safe haven assets at a negative yield. In contrast Spanish and Italian Credit Default Swap Spreads were wider on the day. In the US, the Treasury issued 30 year bonds at a record low of 2.58%!
Also in the US the weekly jobless claims data was very good with a drop of 26,000 printing at a 4 year low of 350,000 but the drop was on the back of seasonality rather than anything concrete. Still, I did also see a report arguing that companies were putting off plant renewal because of the economy so we might get workers instead of machines for a while. This data is one to watch but it does push QE3 further back if it continues to pick up.
So at the close of play. US Stocks erased the early steep losses that flowed on from European weakness. The Dow was helped by activist shareholder Bill Ackmann taking a stake in Proctor and Gamble and news that an Osteoporosis drug being trialled by Merck is going to the next stage. The Dow finished down 0.1% to 12,583, the S&P500 dropped 0.5% to 1,336 and is looking a bit wobbly, see technicals below, and the NASDAQ was off 0.7% to 2,867. In Europe the FTSE fell 1%, the DAX dropped 0.5% and the CAC dropped 0.7%.
In commodity markets it was an interesting night. The price of Nymex crude largely tracked the movements in the US equity markets – indeed on a 15 minute chart it moved in lockstep – trading down to a low of $84.28 before rallying back and it now sits at $85.76 Bbl as I write. Likewise gold tracked stockmarket moves but closed down 0.25%. Even sugar and some of the softs were moving with stocks. So it was a night of highly correlated markets where early weakness gave way to strength but overall price action was slightly negative with the CRB index closing down 0.52%. Corn and wheat are still going gangbusters.
On FX Markets the Australian Dollar kicked things off yesterday with a very weak employment number which has now knocked the trend in full-time employment back to zero, hitting the AUD and driving it down through the trendline. I tweeted at the time that a break of 1.0196 opened the way to 1.0153 but the AUD didn’t bottom until 1.0099 so that was a cracking trade (follow me here on Twitter if you are interested in this type of stuff). The rally in the AUD came around the same time as stocks/oil/gold rallied but it is the worst performer of the big currencies in the past 24 hours losing more than 1%. The Euro was also under pressure and traded to a low of 1.2169 before rallying back to 1.22 currently. This is another 2 year low and while there are tentative signs that EUR is trying to base the pressure remains for the moment. Sterling had a shocker as well and currently sits at 1.5423.
Just briefly in other news:
- Brazil and South Korea cut rates while Japan is buying more bonds.
- This has to be a good thing doesn’t it – the US budget deficit narrowed from a year ago on the back of a 3% increase in tax receipts. You don’t pay taxes unless you have to so, even with this soft spot, the economy must have improved.
- But the above and comments from Warren Bufffet that even though the US economy is slowing housing is picking up suggests a while before a consensus can be built for QE3. It’s up to the data to do the heavy lifting – or not.
- Industrial production data for May in Europe showed a better than expected performance of a rise of 0.6% against -0.2% the pundits had guessed at. YoY growth is actually down 2.8% and April was revised from -0.8% to -1.1%.
- Peugeot-Citroen is to cut 8,000 jobs and shelve one of its plants.
- Yahoo has now confirmed hackers got 400,000 passwords – note to self, different passwords for banking at a minimum.
Lets have a look at some of the markets we follow.
Wheat: Check out the rally in wheat over the past month – lets hope our farmers are able to take advantage of it.
EUR/USD: I’m not going into the weekend mega bearish but I do retain an overall view that Euro is headed lower over the weeks and months ahead. Chinese data is important today and I want to subjectively sell rallies when they come. I have 2 systems short Euro at present from 1.24 and 1.2280.
AUD/USD: My longer term system got taken out of the long at 1.0150 yesterday while my short term system got short when 1.0153 broke. As I noted above when 1.0196 gave way it was a subjective sign that the market was going to run to this level. The selloff accelerated as expected once 1.0050/55 gave way but support came in at the 1.01 region and the AUD looks like it might do better initially today. Subjectively I’m a seller of rallies, and watch CHINA today.
S&P 500: Broke support but tried to claw back inside the range – watch the weekly close for an indication o next week’s direction.
DATA: All eyes on China today with Industrial production, GDP and retail sales all due to be released. This is huge data for markets on par with last week’s non-farm payrolls from the US.
Here is today’s data and you can click here for the full week’s calendar.
And here is how the markets closed at 6.00 am Saturday Morning courtesy of AVAFX
Twitter: Greg McKenna. He is the Chief Investment Officer of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.
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