A sea of red across most markets overnight in what might be considered interesting price action with data in Europe poor but better in the US. Yet it as the recalcitrant German Bundesbank and the watering down of expectations about Draghi’s shock and awe that saw stocks push lower, as did key commodities such as oil. Clearly a bit of position squaring into month end and a little bit of position management as the markets wait for the FOMC tonight and then ECB tomorrow.
Market Watch reported:
Germany’s central bank wants monetary policy in the euro zone to remain strictly focused on price stability, while members having fiscal problems should utilize fiscal instruments, such as the European Financial Stability Facility, to address them, an unnamed Bundesbank official told CNBC on Tuesday
Unnamed Bundesbank official! Very brave but also very telling insofar as they remain unreconstructed in their opposition to their southern neighbours pligh. Draghi’s comments stemmed the bleeding last week of poor price action and sentiment but he needs to deliver.
So at the close of play stocks fell 0.49% to 13,008, the S&P 500 fell 0.43% to 1,379 and the NASDAQ fell 0.21% to 2,939. In Europe it was a little more divergent than has been the case lately with the FTSE down 1.02% with news that Germany remains the recalcitrant in the Euro rescue and also concerns over BP’s earning and outlook. So no surprise that the German market didn’t get hit too hard and in fact the DAX closed down just 0.03% while in France the CAC dropped 0.87% and Madrid was off a similar amount.
As an aside, it feels like July has been a very messy month. So when I was writing the lead piece for this week’s Macro Investor newsletter I did some research in to the daily volatility in equity markets recently compared to what you might call the norm. Interesting the spike in vol has not been anywhere near as bad as it felt, at least on the big markets. Madrid is another story. But the Japanese market has been under pressure for years now and Reuters reported this morning that even though the Nikkei rallied yesterday the fall of 3.5% in July is its worst performance in 5 years. Indeed while the Nikkei is below 8800 it looks biased lower and the 8200/8300 zone is the key – a break would be ugly. Lets keep an eye on this one as it burns in the background.
In commodity markets, oil was off marketedly with a high of $90.30 giving way to a low of $87.31 before a close of $87.45 and a loss of 2.63%. I can’t find any particular reason for the fall in crude, indeed the “fundamental” flow of data with regard to supply and demand has been more supportive than not recently but this is a very short term traders market and with such big event risk this week clearly the buyers just don’t want to take it sustainably back through $90 yet. Corn and wheat continued their volatility falling 1.09% and 2.96% respectively but soybeans were more circumspect dropping on 0.15%. Gold fell 0.40% in what looks like a pretty poor day’s trade technically.
On FX markets it was a little weird with the Euro actually rising even though the data was weak and the comments from the Bundesbank put everyone on notice for another disappointment. At the end of play the Euro was mid range for the day reflecting the fact that we are all waiting on Draghi. For the Aussie Dollar the positives seem to continue to be the key drivers of the support and it sits atop 1.05 again. To most investors, traders and central bankers the Aussie is the stand out AAA free float in the FX universe and as such they continue to want to own it. Stirling was off again reinforcing the top of the range we saw again last week.
Interesting/Other news:
- China’s capital account has swung to a deficit of $71.4 billion in Q2 from a surplus of 56.1 billion in Q1. Interesting, as is the contraction in the current account surplus which is down 5% on a year ago and now only 2.3% of GDP from 2.7% in 2011 and 6% in 2009.
- Also out yesterday was the Taiwanese GDP which showed a fall, unexpected, of 0.16% in Q2 from a year earlier. This is the first on quarter fall since 2009.
- Data out last night showed 25% of GDP in capital has left Spain in the past 12 months while elsewhere there was news that 17.8 million people are now out of work in Europe – that’s 11.2% across the Eurozone.
- According to FactSet via BI the percentage of companies offering negative guidance in the US is 79% for this latest earnings season.
- Data last night in the US wasn’t bad – Case Shiller showed house prices rose 0.91% in May, June Income rose 0.5% but spending was flat and Chicago PMI popped to 53.7 from 52.9 last month.
Lets have a look at some of the markets that we follow.
EUR/USD: We got the move back toward 1.23 we were looking for yesterday and the Euro made a high over night at 1.2328, just 3 points over the 61.8% retracement of the last hourly selloff which pullled up at the 50% retracement level of the July fall. Euro looks now like it might slide a little in the next 12-18 hours to 1.2260 perhaps even 1.2223.
AUD/USD: Yesterday we said “The AUD will pull back, it is just a question of when and where from, and then where to. 1.0540/50 is the 1.382% extension of the most recent move so this zone seems a reasonable place for a rest.” With a high of 1.0535/40 in the past 24 hours this condition is largely satisfied and like the Euro the AUD might drift a little lower over the next 18 hours or so while we wait for the FOMC meeting and what they say which is of “fundamental” importance to risk assets like the AUD.
DATA: There is a three letter acronym that will, along with the FOMC decision at 4.15 in the morning help decide the fate of markets for the next day or so – PMI. These are out in Europe tonight and then we see ISM in the US. Today in Australia we have the AiG performance of manufacturing index and HSBC manufacturing PMI for China.
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 AVATrade
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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