Macro Morning

By Chris Becker 

Risk markets have shown their hand with the “Sell in May” popular crowd working their magic on Wall Street overnight as the US/China trade war heats up over Huawei again. Stock markets fell between 1-2% on both sides of the Atlantic, while oil prices cratered over 5% and currency markets finally found some volatility, this time over the ECB minutes and poor PMI prints.

Yesterday saw Asian stock markets fall across the board with the Shanghai Composite falling by more than 1.3% to retrace straight back below 2900 points, closing at 2852 points, while the Hang Seng Index did about the same, off by 1.6% to 27267 points both signalling a clear breakdown here on the daily chart as this correction continues:

Japanese share markets were down amid the poor mood, with the Nikkei 225 closing 0.6% lower to 21151 points while the broader TOPIX is down about half that. Futures are pointing to an ever sharper retracement this morning as a stronger Yen and very poor sentiment overnight will see the market fall straight through local support at the low moving average as this dead cat rolls over:

Australian stocks finally put in a poor session with the ASX200 falling 0.3% to get back below the 6500 point barrier, closing at 6491 points. SPI futures are suggesting further selloff today, perhaps not in line with Wall Street but it should take back most of this week’s advances. This market is a standout and remains in a bull phase, helped by the local currency, but the blip  highe rin the Australian dollar overnight if it continues into the Asian session will see the 6400 point level under threat:

European stocks reacted poorly to the preliminary PMI prints and the change in mood at the ECB with the lack of any confidence in the past few sessions really showing as the German DAX fell nearly 2% to break below 12000 points and finish at 11952 points. It was so important to keep above this level, but the internal technicals  – i.e  the lack of any new daily highs and stuck daily momentum – gave away the control the bears have here so we’re likely to see a retracement to the former lows and even lower:

Wall Street is now really feeling how dumb this trade war is with the S&P500 closing 1.2% lower to 2822 points in a clear selloff mood. The daily chart is now displaying a classical bearish head and shoulders pattern, the recent dead cat bounce forming the right shoulder. It’s easy to play this – a fall below the neckline at 2800 points will precipitate a wider selloff and a full correction:

Volatility in currency markets has returned as well, this time helped by the latest ECB minutes although Pound Sterling finally stopped retreating and settled at just below the 1.27 handle, it was all about Euro overnight. A cursory glance at the four hourly chart shows a very swift selloff which was then filled and then some, almost reaching the 1.12 handle on the back of the ECB minutes release and the PMI data which disappointed. This is already way overbought and will find tough resistance tonight to follow through:

The USDJPY pair took a dive on the poor mood with safe haven buying seeing it fall straight through the 110 handle and back to last week’s pre-breakout lows.  With support gone at 110 and now resistance, the next level down is the 109.20 terminal support area:

The Australian dollar finally found some life with a small blip up to the 69 handle, but still not enough to beat trailing ATR resistance at the 69.20 level. It remains to be seen if this is THE bottom or a pause in the long step down that the Pacific Peso needs to take with more potential for a follow through below the 68.65 area today:

Oil prices continued their selloff after the inversion on the back of the poor DOE inventory report with the WTI contract falling more than 5% to finish at a new monthly low, cratering at the $58USD per barrel level. As I said yesterday, this move was precipiated by the bulls dumping their longs here and as I’ve always warned, this could go even further than expected – $52 anyone?

Finally to gold, which finally came back overnight, rising about $10 to the $1283USD per ounce level after almost reaching the previous bottom in the last couple of days with a deceleration in the selloff. Note how momentum was never oversold (below -100) but its not yet positive, and needs a lot more interest here to get back to the $1300 level:

Glossary of Acronyms and Technical Analysis Terms:

ATR: Average True Range – measures the degree of price volatility averaged over a time period

ATR Support/Resistance: a ratcheting mechanism that follows price below/above a trend, that if breached shows above average volatility

CCI:  Commodity Channel Index: a momentum reading that calculates current price away from the statistical mean or “typical” price to indicate overbought (far above the mean) or oversold (far below the mean)

Low/High Moving Average: rolling mean of prices in this case, the low and high for the day/hour which creates a band around the actual price movement

FOMC: Federal Open Market Committee, monthly meeting of Federal Reserve regarding monetary policy (setting interest rates)

BOJ/Abenomics: Bank of Japan, economic policy/direction enacted by PM Shinzo Abe

DOE: US Department of Energy 

Uncle Point: or stop loss point, a level at which you’ve clearly been wrong on your position, so cry uncle and get out!

Latest posts by Chris Becker (see all)

Comments are hidden for Membership Subscribers only.