At heart, I follow fundamentals but I was lucky enough to work with an old style technician who used to draw charts by hand and showed me the power of the technical approach to trading and the markets.
The reason I raise this is that whatever the technical structure of the market recently the underlying economic fundamentals of the global economy are and have been weak. Thus while I might “trade” the moves short term my overarching view remains that the gravity of weak data and a weak economic outlook will ultimately win out regardless of any golden compact that stock traders might lull themselves into believing.
So it was again overnight. The economic reality was writ large with data in Europe and the US weak and weakening. The various measures of PMI in Europe, whether for the Eurozone as a whole or Germany and France (in particular), showed that recession is either upon them or imminent. EZ wide flash manufacturing PMI printed 44.1 versus 45.3 expected, services were better printing 47.6 versus 47.2 and the composite was 0.1 lower than expected at 46.4. The data in the US was equally poor with the the Redbook retail sales -1.3% for the first 3 weeks of July against June, the flash PMI fell to 51.8 in July which is the lowest since Dec 2010. Equally the Richmond Fed Index was really weak with the Manufacturing Index -17 versus -1 in June, shipments -23 v 0, retail revenues -18 from 3 and services -11 v 11. Ugly, and a clear sign the US economic recovery is now absent. But housing does remain a bright spot for the moment with the FHFA house price index up 0.8% in May compared to April showing a 3.7% annual rise.
So the data was poor, Spanish bonds hit new Euro era highs and closed at 7.62%, Italian 10 year’s are at 6.6%, Greek 10 year bonds are at 28.02% and even German bonds rose a little, but only to 1.236%. If I was going short a European bond it would be the French 10 year as our good friends over at Global Macro Monitor suggest this morning.
So at the end of play this morning Stocks were down again with the Dow slipping 0.82% for its third 100 point plus fall in a row to 12,617, the S&P 500 down 0.9% to 1331, and the NASDAQ fell 0.94% to 2,862. What you need to know is that Apple’s big miss on earnings and revenue has US equities under pressure in after market trade. In Europe weak data weighed with the FTSE off 0.63%, the DAX fell 0.45% and the CAC was off 0.87%. Madrid sold off heavily again dropping another 3.49% as Spain slides inexorably toward a full bailout.
On Commodity markets it was another tale of woe with the CRB off 2.51 points to 296.37 as it continues to reverse what looks like last week’s bull trap and the grains unwind what were/are very overbought markets. Corn fell 0.53%, Soy Beans 3.36% and Wheat 3.87%. I trust some of our farmers locked and loaded last week. Crude was up a little rising 0.66% but it is off now in sympathy with stocks.
On FX markets the Euro was under pressure again hitting another new 2 year low at 1.2043 before finding support and recovering. Also helping it was a report from the Wall Street journal that Fed officials might be back manning the stimulatory pump as early as next week. The Australian Dollar remains under pressure as well and looks biased back toward 1.01 and it is losing ground on the crosses. Risk assets are not going to do well as this economic weakness ties up with poor top line revenue results and only QE3 can save them – when it comes.
Just briefly in other news:
- Ouch, what a miss, Apple has reported 3 quarter EPS of $9.32 v 10.37 estimated and revenues of $35.02 billion versus $37.25 – not good for stocks or risk assets today.
- France is upping the ante and the pressure on the ECB to put more money toward bailing out Spain.
- The Greek PM said he is worried their will be a 7% contraction in the Greek economy. The Troika is there at the moment to see if Greece needs another restructure.
Lets have a look at some of the markets we follow.
EUR/USD: Longer term I remain of the view that the Euro is heading under 1.20 and targeting the June 2010 low around 1.18. the Euro only got as high as 1.2142 yesterday before reversing. Unless or until it can regain 1.2158 it is biased lower on short term time frames.
AUD/USD: As noted yesterday the AUD did rally before coming under intense pressure and losing well over a cent top to bottom of the past 24 hours. My bias remains for a move back to 1.01 and then we’ll evaluate how it looks. A low CPI today, or a high one, is important for the AUD in Asian trade.
SPI 200: We got our move back to 4100 yesterday we expected before reversing. The price action on this is looking really poor now and I’m targeting 4015/20 but ultimately when/if that breaks 3950.
DATA: My goodness what a day – it is a sea of red on the data front over the next 24 hours. Not bad news necessarily but certainly a huge number of datapoints that I flag red as super important both for the long and short term. CPI and its ancillary measures are out in Australia today along with the Australian Leading index and Skilled Vacancies, in Germany we get the IFO Business survey tonight, UK Q2 GDP while in the US we get MBA mortgage apps.
Here is today’s data and you can click here for the full week’s calendar. Please note that data coloured blue is important to me and that which is coloured red is important to everyone.
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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