The World Bank downgraded its outlook for East Asia yesterday and Europe’s markets played catch up to the weaker close on Wall Street late Friday as markets drifted lower overnight.
Equally European traders clearly remain a little concerned about Spain and the outlook but on a day where the Eurozone formally launched its bail out fund this seems a little strange. But from where I sit on the other side of the world it seems the enduring uncertainty about what, when or if Spain is going to ask for help which is what keeps coming back to bug markets. Indeed there was an EU Finance Minister confab last night and Reuters reported German Finance Minister Schaeuble as saying:
“Spain needs no aid program. Spain is doing everything necessary, in fiscal policy, in structural reforms…Spain has a problem with its banks as a consequence of the real estate bubble of the past years,…That’s why Spain is getting (EU) help with banking recapitalization.”
Sure, of course – she’ll be right mate. Schaeuble’s comments were echoed by others and while I’m not going to say for a second that last night’s weakness is necessarily the start of something big what I do want to reiterate and something I hold top of mind when making trading and investment decisions with regard to Europe is that the political class is moving at a different time frame to the markets so hiccups are inevitable.
The other thing I have top of mind is this earnings season that starts tonight in the US – while I can’t speak specifically about one company’s outlook or another’s this earnings seasons could be problematic for markets. I’m reminded of something akin to the similar earnings season reporting back in 2007 when the market saw some disappointments and reacted accordingly with a 200 point drop between October and December 2007. The reason I wonder if this is where we are headed is because the last earnings season saw a large number of companies miss revenue forecasts but hit profit targets as “productivity” gains were available to them. If this process has run its course then there is every chance that we see some disappointments this time round. Clearly as you can see in the chart this is a long and strong uptrend and has defied all bearish calls so far – but earnings are still important at some point in the calculation of an equities valuation. But please note this is just a warning not a forecast. So at 6.30 this morning (remember with day light saving markets don’t close till 7am Sydney and Melbourne time now till November 4 when it will 8am) the S&P 500 was down 0.24% to 1457, the Dow dropped 0.12%, NASDAQ 0.62%. In Europe as noted above there was a bit of catch up selling and the FTSE fell 0.50%, the DAX dropped 1.44% and the CAC was 1.46% lower.
On FX markets the Aussie sat all day yesterday trying to break down through support at 1.0150 but remained well bid in this region and it rallied early this morning to a high of 1.0217. The EUR is mid range at 1.29+78 after making a high of 1.30148 and a low of 1.2936.
In commodity marketsm crude was fairly quite as was gold with both falling 0.38% and 0.26% respectively. Copper dropped 1.37% no doubt worried about the World Bank outlook and the Ags saw corn down 0.81%, wheat +0.41% and soybeans were flat. OJ fell 2.13%.
Lets have a look at some Meta4 charts from my AVATrade platform.
EUR/USD: Given that overall FX volatility has reduced materially back to pre-GFC lows it is worth looking at shorter time frame charts to get a feel of things and what is driving markets. As you can see here the EUR broke its little October uptrend last night on the 4 hours charts and is struggling to get back above it. On the day it would need to break back through 1.2993/1.30 to kick on support should be 1.2936.
AUD/USD: You can see the support the AUD has/had at the bottom of the recent range at 1.0150 in the past 24 hours. We are looking at a 30 minute chart here that the AUD’s rally is reversing lower into the open this morning. 1.0190 is first support this morning then 1.0183 and 1.0174 and of course strong support at the range bottom of 1.0150 (last nights low 1.0148). resistance remains 1.0115/20.
Data: NAB Business survey – the most important economic stat in AUstralia .
Here is a snapshot of where markets sat on Saturday morning from MT4 at 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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