Stock markets are under pressure again this morning and back toward the bottom of recent ranges as concerns of the global economy remain top of mind. Trade data from Japan yesterday showing that exports fell 10.3% in September was worse than the punditry’s already jaundiced expectations of a fall of 9.9%. But it seems to me this data says more about the enduring spat with China and the drop in automakers sales than anything global. But the fact the market wants to view it negatively tells us that sentiment is still shifting from sanguine to negative.
In Europe the results of the regional Spanish elections helped the euro as Spanish PM Rajoy did better than many feared he would. But the overall negative energy that fed through from the US close on Friday night and then the Japanese trade data and enduring earnings disquiet saw European shares lower. Electrolux and Philips warned of an enduring slowdown in North American demand at the same time that European consumers are not spending either. The FTSE fell 0.2%, the DAX fell 0.7% and the CAC dropped 0.6%. The German Finance Ministry was out overnight with a prediction that the German economy was going to continue to slow.
In the US, stocks were lower again and Caterpillar gave an interesting profit warning again, saying that its earnings would be 5% either side of the 2012 result. Reuters reported:
Caterpillar’s retail dealers are selling off inventories, rather than buying new machines, forcing the company to idle some production at plants earlier this year with additional shutdowns coming, executives said on Monday.
“As we’ve moved through the year, we’ve seen continued economic weakening and uncertainty,” Chief Executive Doug Oberhelman said in a statement.
Somehow Caterpillar shares are up even though it missed its sales target but hit the revenue target – seems a little bit of productivity was wrung from the balance sheet but this can only take companies so far if demand is not there in the end.
At the end of trade, however, there was a late rally dragging the Dow back from being down around 0.5% to close up 0.02% while the S&P 500 climbed off the mat having been down around 0.6% to close up 0.04% to 1433 and above the important trend line support I have been focussed on for a week or so now. The NASDAQ actually managed to rally from +0.04% about 15 minutes before the close to finish at 3016 up 0.38%.
Interesting that oil fell overnight again and it too sits at the bottom of the recent range. At $88.81 Bbl Nymex crude looks to me to have broken recent support and is biased back toward $87.60/70 which is critical support. A break of this level opens the way substantially lower. Copper was lower and continued last week’s break down and is starting to look like it might have substantial downside momentum building up. Gold is up $10 oz to $1727 no doubt as a bit of safe haven bid comes into the market but my indicators suggest the negative trend continues.
On FX markets the euro rose a little overnight on the back of the Spanish elections while the Yen was under pressure after the worse than expected trade data. We’d have to say that the day Spain actually asks for the aid that they need is a day not to be short euro and as I heard a strategist from RBC in London, Elsa Lignos, say on Bloomberg, there is some elements of euro independent strength trying to emerge. It is clear that both the euro and the US dollar are close to recent range tops/bottoms. Perhaps euro strength can flow through on the crosses as we saw with EURJPY overnight.
For the Australian dollar the 200 day moving average looms large once again as a big level at 1.0270/80 to the downside and it seems likely that the Aussie will test it at some point. Yesterday we wondered if the MYEFO might wake the market up to the facts about the Australian economy and the challenges it faces but it seems it remains least ugly for the moment. On MYEFO, I was pleasantly surprised at the way the Government achieved its savings and as Rob Henderson Chief Market Economist at NAB said on the ABC last night, the cuts were in areas that shouldn’t hit the economy too hard given how much pressure it is under already. As rubbery as expectations are about where the budget surplus is going to be at the end of the financial year, the reality is that the market rewards the fiscally austere.
Lets have a look at some Met4 charts from my AVATrade platform.
EUR/USD: As noted yesterday “the daily and 4 hour up-trends remain intact – for now – so we aren’t going to get too bearish just yet”. It also pushed above the 1.3040 level we identified as negating the short term downside push and sits at 1.3055 as I write.
1.3120 is a huge level to the topside being the double trendlines resistance and on the day last nights high of 1.3080 would need to break to push higher. On the downside 1.3040 and then 1.30135.
AUD/USD: The AUD tested lower as expected yesterday but it found solid support under 1.03 with the low at 1.0290/95. This low will now represent support and 1.0335/40 resistance on the day.
Data: We have the conference board Leading Index out today in Australia and then I’ll be watching the retails sales data and BoC decision in Canada tonight as well as Consumer Confidence in Europe and Richmond Fed Manufacturing Index in the US .
Here is how the markets looked this morning.
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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