When you have been in markets as long as I have you learn to take hyperbole with a grain of salt but when you hear crusty old meteorologists calling Hurricane Sandy and its convergence with another weather system a once in a life time storm you take notice.
Sandy has already disrupted trade on the New York Stock markets with the NYSE closed Monday and also Tuesday as it stands at the present. To put that in context, the Wall Street Journal reckons that the last time the NYSE was closed for two days due to weather was back in 1888. But more than just trade, Sandy is going to disrupt the economy in a serious way. Already there was talk of the non-farm payrolls due this Friday not being released but more important is the disruption to business and commerce and crucially to confidence in the US economy.
In the past the Fed might have eased to help accommodate the disruption to economic activity in the same way the RBNZ did after the Christchurch earth quake. But when you are pushing on a string with rates at zero the Fed won’t be able to give much help this time round. In real terms, while there are people at risk ht economy is meaningless but this column is about finance and it is no exaggeration to say that the US economy and its growth profile is at more risk now than before Sandy. Some economists are already focusing on reconstruction as a behaviouralist I simply think Sandy is another twack in head for the US economy.
So it was overnight that we saw with the US dollar stronger, gold, crude, the Aussie, Euro, stocks all lower.
As discussed the US stock market was closed but in Europe the FTSE fell 0.20%, the DAX dropped 0.40%, the CAC was 0.76%, Spain down 0.67%. Greece and Italy were however the big movers. The Athens stock exchange was down more than 6% at one stage after the Finance Ministry announced that the the Greek Bank quarterly earnings numbers would be delayed 1 month. Equally concerning for Greece and Greek stocks was the comment by Nowotny that the ECB won’t be taking a haircut on Greek debt. While in Italy Silvio Berlusconi’s tantrum after being sentanced to jail and his threat to bring down Monti saw the Milanese exchange off 1.51%.
Yesterday in Asia the results from Honda were pretty dire and it lost 4.7% of its value after downgrading the outlook for 2013 but the Nikkei managed to end basically flat. The Australian market eked out a 0.1% gain and futures trade is pointing to another small rally today although I wouldn’t be buying that as it looks to me like the SPI200 is dropping through a 3 month uptrend.
On FX Markets, the US dollar was a little stronger with the euro hitting a low around 1.288, roughly the same level as Friday night before bouncing back a little to sit just above 1.29. The Pound likewise had a negative day falling more than 100 points from a high of 1.6102 yesterday to a low of 1.6002 and it sits now at 1.6026. Stirling’s price action looks poor and it seems to me that a move toward 1.5870 is in the offing – this is the bottom of the current downtrend channel. USDJPY rallied off the 200 day moving average around 79.50 overnight and sits at 79.80 as I write – I remain bullish this cross in a trend sense.
For the Australian dollar it is an interesting time – uncertainty never used to be good for the Aussie and so strength in adversity is a strange bedfellow and one that I simply don’t trust. Indeed the Aussie was doing really well in our timezone yesterday up to a high around 1.0370 before finding the sellers once again and consistently before running down to a low around 1.0325. It’s not exactly a huge range in the grand scheme of things and its strength in adversity means I need to put my concerns aside for now – but they linger.
Lets have a look at some MT4 charts from my AVATrade platform.
EUR/USD: The EUR fell back below the uptrend line in trade overnight but like Friday it found solid support at 1.2880. This is looking like a Euro break down but a push below 1.2870 is needed to confirm:
AUD/USD: As you can see in the chart below the Aussie has some tentative downtrend support overhead and I agree with the NAB FX Strategists characterisation yesterday that the AUD lacks the strength to get above 1.04. Rather I favour a move back toward 1.03. But as we say the AUD is in a big old range for the moment and trading that is favoured over having a swing for the fences one way of the other:
Data:Industrial Production for September out of Japan and the BOJ interest rate decision. In Australia we have HIA new home sales and tonight Deputy Governor Phil Lowe speaks about Australia and the rest of the world. Data in Europe tonight is concerned with consumer and industrial sentiment before the release of Case Shiller housing 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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