It was a big night for currencies and commodities but there is a real risk now for stock bulls that the FOMC just put a lid on the recent rally. The FOMC Minutes which came out at 1700 GMT or around 6am Sydney time and showed a recognition that the flow of easy money can lead to instability within markets, particularly at the stage where they need to withdraw or reverse the stimulus. Interestingly, rather than have a fixed end date at 6.5% unemployment, which could cause huge ructions as all of us outside the central bank conclave know, the FOMC members seem to have had a light bulb moment:
A number of participants stated that an ongoing evaluation of the efficacy, costs and risks of asset purchases might well lead the Committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred.
Sing Hallelujah! They get it finally but that doesn’t make it any easier to empty the bath without the baby going down the plug hole and the review that they have flagged of their asset buying program at the March meeting is now a critical point for stocks and other markets.
These minutes may have put a top in place for stocks.
So stocks, which were already under pressure after a weaker night in Europe have really come under pressure from the FOMC minutes. With 25 minutes to go the Dow is down 0.62%, the Nasdaq has fallen 1.17% and the S&P is off 1.02% or 17 points at 1514. In Europe the FTSE managed to climb 0.25% no doubt excited by the prospect of more monetary easing while in Germany the DAX fell 0.3%, the CAC dropped 0.69% while Milan and Madrid were off 0.82% and 0.76% respectively.
Looking fundamentally for a moment, German CPI data was bang on expectations but PPI was a bit higher in January up 1.7% against expectations of a rise of 1.5%. In France the Business Climate survey was a little higher than expected while CPI was lower. In Italy the industrial sales and orders data was weak while in Britain the claimant count and unemployment rate were around expectations. In the US the housing related data was mixed with Building Permits very strong but housing starts and mortgage applications a little on the weak side while PPI gave no surprises.
In the UK the Minutes were equally interesting. Outgoing Governor Mervyn King led an attempt, along with David miles and Paul Fisher, to have the BoE increase the size of its bond buying program by £25 billion which was a surprise to the market. When taken in the context of the BoE recently increasing its inflation outlook the market is clearly fearful the risks are that the BoE throws caution to the wind in order to get the economy going which is putting further downside pressure on GBPUSD.
Turning to gold, the sell off continues although the big fall through the bottom of the downtrend channel and the push well through the Bollinger bands is faster than I’d expected. But then again we have always thought that Heisenberg’s Uncertainty Principle had a role in markets in so far as we can’t know both the target and when it will get there. It is one or the other so we focus on the target which remains $1525.
As you can see, gold is pretty much on its lows for the day and well below the significant moving averages. My trend following systems are short but it seems the market is at risk of turning even more bearish if my calculation that the 50 day moving average at $1671 and the 200 day moving average at $1668 is correct. Should the 50 day moving average fall below the 200 day moving average then we’d have a signal for many traders that the bear market has begun. So watch the moves in the next couple of days.
Silver also has decisively broken down with a huge fall overnight of 2.71% to $28.67 oz. The low for the evening was right on the last Fibonacci support of 23.6% of the move from the June to October 2012 rally. Personally I never use this support level but others clearly must.
In FX land the Aussie is down over one big figure and is back below 1.03. Sterling has been absolutely thumped and is just above the crucial support zone. The NZD is also much lower after the RBNZ did its best impression of David versus the global currency market Goliath while the euro is also lower at 1.3273 and through the recent support line. The US dollar has jumped above 81 cents, it’s highest level in three months.
On commodity markets, crude was sharply lower dropping below $95 Bbl and our technical view is that it has some way further to fall.
Lets have a look at some Meta 4 charts from my AVATrade platform.
S&P 500:
The S&P has clearly hit resistance and although it hasn’t backed off lack of follow through and the fact that it touched fast moving average suggests a reversal is coming. I am targeting a 30 point fall from here:
AUD/USD:
We can see the clear and volatile box that the Aussie is in at present. I sold with a stop at 1.0377 yesterday but took profit too early while asleep. Aussie will likely find some support today:
Data
RBA Foreign exchange transactions today in Australia and then it is Markit PMI time again with the release of dat for France, Germany, Eurozone, US and other jurisdictions. In the US jobless claims will be important as usual and crude stocks given the last days move could be crucial for Nymex prices.
Twitter: Greg McKenna
Here is how markets looked this Morning
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