Macro Morning: Stocks plunge


Equities are getting crushed as a combination of European fears, weak data and the fiscal cliff give the bears the upper hand – even the almighty Aussie dollar was under pressure overnight as bonds rallied and buyers exited the market.

On the data front it was weakness everywhere. In the UK even though the unemployment rate at 7.8% was a little better than expected the increase of 10,800 in the claimant count was a concern and the recent uptick in inflation from 2.2% in September to 2.7% in October has people questioning the BoE’s strategy. I think they want inflation a little higher, or at least they did until the UK government made the grab for cash from the BOE last week – effectively loosening policy. Elsewhere Portuguese GDP contracted 0.8% on the quarter and 3.4% year on year, Eurozone industrial production fell 2.5% in September (wow!) while in the US PPI was subdued up just 2.3% yoy but down 0.2% in October. Retail sales were flat ex-auto’s but down 0.3% if they are included for October.

Down beat all around and no wonder stocks were under pressure.


Recently I have been writing that I thought this earnings season had the potential to see the market react as it did during Q3 earnings season in 2007 and so far we have seen that. Companies have disappointed on top line revenues at an alarming rate and although things have improved recently overall the market has followed the script – lack of revenue is a big fundamental to ignore. So stocks are off and very close to breaking down for another leg – 1362 is a key level for me as it was last week’s low and also a key fibonacci extension of the recent sell off bounce and sell off again.

As I write it is not looking good as you can see on the chart above but it’s the close that matters today.


At the close of play in Europe losses were across the board except for Oslo which bucked the trend rising 0.16%. In the UK however the FTSE was off 1.11%, the DAX dropped 0.94% while the CAC was 0.89% lower. Madrid was only off 0.30%. One thing about Europe is that the big strikes and skirmishes across Spain and other centres in Europe in anti-austerity protests suggests to me that Spain is only going to ask for a bailout if it is truly forced to – and it is not apparent yet that Spanish PM Rajoy feels that yet – so the European woes are set to endure.

In the US with 35 minutes to go the S&P has broken my 1362 level down 17 points or 1.24% to 1357. The dow is off 1.29% and the NASDAQ off 1.15%.

Crude was up and this is being blamed on the Israeli air strikes in Gaza and general tensions in the region. That might be the case but technically it simply looks like crude has built a support zone from which it is trying to rally even if overall momentum is flat. Crude is up 1% or 85 cents Bbl to $86.21. Gold is unchanged, the Ags were quiet but cocoa and orange juice were both up more than 3%.


Big news in FX overnight has been the move higher by USDJPY as the Yen weakened with the announcement of an election which is widely tipped to see the incumbents lose power and usher in a more stimulatory friendly regime under the Liberal Democratic Party lead by Shinzo Abe. Reuters reported this morning that Mr Abe called on the BOJ to print unlimited Yen. Recently he called for inflation to be pushed to 3%!

Lets have a look at some Meta 4 charts from my AVATrade platform.

EUR/USD: The EUR had a better day and back above the little two week downtrend but off its highs for the night at 1.2777 sitting at 1.2753 – this rally might have legs for another day or so – strange as that may seem:


AUD/USD:  The high of 1.0458 was very short lived and looked like it might have been a London fix play because it then proceed to trade down from that very point – interesting! Anyway the focus is now back on the bottom of the pennant, sort of, formation which comes in at 1.0362 today. For me a break of 1.0355 would be needed to kick AUD lower and 1.0325/30 is fibonacci support and if that gives way I’m looking for a much deeper retracement.:


Data: In New Zealand we get Business PMI, in Australia we get consumer inflation expectations and New Motor Vehicle sales. Tonight we get GDP data in France, Germany, Italy and Spain as well as retail sales in the UK. In the US we’ll be watching CPI and jobless claims data as well as the Empire Manufacturing Index.

Here is how the markets looked at 7.11 this morning.


Twitter: Greg McKenna.

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