Unlike Thelma and Louise, markets are not keen on careening over the fiscal cliff and stocks were lower for a second day and the US dollar and the Japanese Yen gained.
Let’s not forget though as I have been writing since the start of this Q3 earnings season that I felt the risks were that we had a 2007 style season where the reality of the weak underlying economy meant that top line revenues and profits disappointed expectations. This is largely what we have seen so as much as this fiscal cliff stuff could reverse with soothing words from either the President or Republican leader John Boehner over coming days or weeks for mine it is simply the reality of earnings both now and in prospect which has been the big headwind. The fiscal cliff just strengthens the breeze. As the Wall Street Journal wrote this morning:
Sure, the election has something to do with the stock sell-off, as does Europe as well. But don’t forget about earnings, which are coming in at their worst rates in three years.
Anyway, looking at the data in Europe overnight we see weakness again with German exports falling a larger than expected 2.5% in September against an expectation of 1.5% elsewhere in France both exports and imports were lower than last month while in Greece unemployment rose to 25.4% August from 24.8% previous.
The other big news was the decisions by both the BoE and ECB which held rates steady and in England the BoE keep their own QE the same at £375 bln for the moment. In Europe ECB boss Draghi was talking up the OMT again and comparing it to a heavy monetary policy injection but his outlook for growth was pretty poor and he seemed to imply that he and his colleagues at the ECB had done what they can with regard to Greece.
In the US the data wasn’t terrible which reinforces the recent trend of relative out-performance of the US relative to Europe and other nations. Initial jobless claims fell to 355k from 370k expected and 363k last while the improvement in the trade balance from the -$45 billion expected in September to just -$41.55 will increase GDP at the second read most likely as net exports deduct less from growth – the NAB said this morning it might even be a 0.4% uplift.
At the close of play European stocks were lower but less so than the previous day with the FTSE down 0.27%, the DAX down 0.39% and the CAC fell 0.06%. Madrid fell 0.39% even as Spain got a good result from its bond auction over night.
In the US at 7.40 am EDT and 20 minutes before the close the S&P 500 is down 0.81% to 1383, the Dow is off 0.52% and the NASDAQ has dropped 1.11% as Apple is under intense pressure.
Asian stocks were under intense pressure yesterday with Hong Kong playing catch up to the US sell-off getting slammed to its biggest single-session percentage loss in 3½ months with a fall of 2.41%. The Nikkei dropped 1.51% and the Shanghai composite fell 1.63%. Clearly Asian investors are impacted by the tractor beam of the global sell-off but equally by concerns about the impact on Asian growth from the weakness in Europe and the US economies (even if the US is doing a little little better).
In Korea the Kospi dropped 1.19%, Straits Times fell 1.02% in Singapore and Bombay fell 0.30%.
Like the Aussie dollar, the ASX All Ords is somehow holding up better than most markets falling only 0.70% yesterday but it will be off sharply again today and in SPI200 terms we continue to watch the 4425 level as a trigger for a deeper retracement.
Crude oil futures had a bit of a volatile session but recovered some of the previous day’s lost ground rising 0.8% to $85.09 Bbl. It does seem clear however that Nymex crude is in a downtrend.
Gold continued its 4 day rally rising to $1732 or 0.88% and a long way from last week’s lows – at least in dollars per ounce terms. Gold is rising even as the USD so that may be related to the election result and relief that Bernanke can continue to experiment unhindered.
On Gloabl FX markets the Yen was the big winner across the board and looks like it can head much lower against the US dollar even as the USD looks like it can rally solidly in index terms and against the euro. The AUD remains well support by yesterday’s employment data and enduring optimism from offshore investors.
Lets have a look at some Met4 charts from my AVATrade platform.
EUR/USD: EUR which is continuing to slip lower although it has still not closed below the 38.2% retracement of the July to September rally at 1.2734. Momentum is building for a deeper retracement however and my system is short and has been for 5 days now. The euro’s high of 1.2780 gave way to a low of 1.2716 but at 1.2748 as I write EUR is only 0.16% lower:
AUD/USD: A messy chart with the current 4 hour candlestick reversing the previous 4 hour up move for the AUD to be roughly unchanged in overnight trade. My sense is that it will head lower into the week’s close:
Data: The RBA’s quarterly Statement on Monetary Policy is out this morning and we’ll be having a good look at their justification for not easing this month and any hints on the next meeting or in February. Then it is a raft of global CPI data starting in China today and then moving into Germany and Greece tonight. Also out is industrial output in Italy, France and Greece as well as leading indicators and trade balance for the UK. In the US its import and export price indices while in China over the weekend we get money supply, new loans, trade balance and IMPORTANTLY export and import data.
Here is how the markets looked this morning at 730 am EDT.
Twitter: Greg McKenna.
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