Macro Morning

By Chris Becker 

A bath of blood on equity markets overnight as the US/China trade war deepens with US stocks falling around 3% across the board, now wiping out all the nominal gains for the year. It was a run to safe havens instead, as gold surged alongside Yen while US Treasury yields plummeted to a near three year low with the Aussie 10 year now at a record low below the 1% mark. In economic news, the ISM Services index went to a three year low alongside the European PMI.

Looking at the action on Asian markets yesterday, where the Shanghai Composite fell over 1.6%, building on its woes from Friday closing 2821 points while the Hang Seng Index gapped down again, dropping a further 2.8% to 26151 points as domestic concerns over strikes and protests weighed. This is far more than expected and puts it on track to take out the January lows at 25000 points and then a possible overshoot to the September 2018 lows at 23000:

Japanese share markets did nearly as bad, with the Nikkei 225 off by nearly 2% to close 1.7% lower at 20720 points. The daily chart shows how the 21000 point support level has been taken out, wiping out the May bottom and heading to new lows as Yen buying accelerates. The December 2018 low at 19000 points is the most likely target here:

The ASX200 did not escaped the carnage yesterday, falling nearly 2% as the iron ore price weighs on miners, closing at 6640 points as fear builds. SPI futures are down over 110 points, or nearly 1.8% and obviously my target of 6600 points is going to be taken out today. The KC Signal wins again:

European stocks had another terrible session with 2% losses across the board, with the higher Euro not helping at all this time. The German DAX was not the worst, with FTSE falling the most, but was still off by nearly 2% to finish at 11658 points, remaining well below the 12000 point level. The daily chart is very clear here as price hovers just above the May lows at 11600 which must hold or this will turn into a rout:

Wall Street had its worst day in a long time with even greater falls that that of the Old World, with all three bourses falling at least 3% in a big selloff. The S&P500 fell nearly 90 points or 2.9% to close at 2844 points, making key psychological support at 3000 points a distant memory. With medium term support at the 2960 point level and daily ATR support level gone also a long way away, the next level to reach is the May low at 2750 points, but watch for the inevitable bounce – dead cat or otherwise:

Currency markets were again the nexus for safe haven buying, with commodity proxies falling while undollars like Euro and Yen rose instead. Pound Sterling was relatively quiet again while the Euro surged to get back to the 1.12 handle in a well overbought rally. I had been watching for an inversion but multi day and week highs have been taken out here so its still upside pressure while not confusing short term swings down as reversals:

The USDJPY pair has decelerated somewhat into a temporary bottom, hitting just below the 106 handle as it takes a pause during its mammoth selloff on USD weakness and the safe haven bid. This keeps the pair well below the July lows and makes a new yearly low with the longer term chart suggesting a bottom nearer the 104 handle. This isn’t over yet:

The Australian dollar is still falling as commodities continue to selloff with the Pacific Peso remaining well below the 68 handle that broke on Friday night. While momentum remains well oversold there is still the chance of a small fightback as this trade seems way too crowded. I’m watching the high moving average as signs of a possible swing higher:

Oil and other commodities remain very weak as the trade war continues with the WTI contract finishing just below the $55USD per barrel level again, unable to get any momentum. There is a growing possibility of a greater selloff down to $50 still imminent if no new daily highs are made soon:

Finally to gold, which is catching the safe haven bid and then some, launching up through long term downtrend line to finish at $USD1463 per ounce overnight to a new yearly high. The rally was a clear bullish engulfing candle move, reversing the previous, albeit weak selloff on the recent Fed cut. This is no longer just interesting, but a new trend:

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!

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