by Chris Becker
I commented on Fridays morning report that we are experiencing the calm before the storm, but I thought this “eye” would be a touch wider, as volatility sharply returned to risk markets over the weekend. As mentioned this morning, it was a flight away from “havens” like the Australian dollar, and into sovereign bonds with the US 10 year Treasury down to 2015 lows. Oil was slammed nearly 6% as Iranian sanctions were lifted and bank losses from US shale concerns start to mount. Chinese stocks led the charge, dragging the other now almost 100% correlated bourses in Europe and the US with it, with 2 to 3% falls translating to fear and carnage as losses for 2016 mount up.
As usual for a Monday, I stand back and have a longer term view of the market with a view to the week ahead – and its hard not to be bearish. But caution must abound as the mining GFC rolls on…
Recapping Asia first where the PPT couldn’t save the Shanghai Composite on Friday as the bourse fell from the open and past the long lunch break, down 3.5% to just on 2900 points. This is below the significant terminal support line at 3000 points and almost below the weekly low reached in the first phase of this reversion to mean in the pop of the bubble. My target remains 2000 points as the right hand shoulder is now formed in this epic head and shoulders pattern: