Thursday strength proved ephemeral in New York trade Friday and it was an ugly end to the week on stock markets. The Dow and S&P finishing their worst month since May 2012 and the first loss for January since 2010. Some pundits like to say where goes January there goes the year, but time obviously will tell. At the close the Dow was down 150 points or 0.9% to 15,699 for a loss of 5.3% on the month. The S&P 500 lost 12 points, 0.6%, to 1783 for a 3.56% drop in January while the Nasdaq lost only 1.7% during January and 0.5% on Friday.
San Francisco Fed President Williams said the the stock markets gyrations woun’t change the Fed’s outlook which is of course true when the magnitude of the moves above are factored in. But a crash or even a mini crash – that is likely another story entirely. You can read Henry Blodget’s take on the current market outlook herethis morning.
Which brings us to what is probably the most important chart in the world at the moment. Because, for all the talk of China and emerging markets it is really the Dow and S&P that the global asset allocators are looking. But with only a 5% fall in the Dow and an almost 4% fall in the S&P markets it’s hardly even a decent pullback. So unless there is contagion into the big markets and some serious selloffs then EM messyness is just that.
So it is worth looking at the S&P as the global bellwether of stocks – sure the Dow gets more focus but its construction and the way it is calculated is problematic and unrepresentative when compared to the S&P 500 which I prefer to use as a benchmark for stocks and I guess risk.
As you can see the S&P 500 last week found support on the trendline that has been supporting it since late 2012. The S&P 500 has already broken my fast mving average which suggests a move toward the slower one normally that sits at 1738 (futures terms) this week. I think it takes out the line and heads to the slow ma – but only a break of the slow ma suggests lower – but if it does then its 1675 as a target.
In Europe stocks were in the red also and had a bad month themselves. The big news was the European CPI data and German retail sales. CPI printed just 0.7% year on year in January while German retail sales unexpectedly fell 2.5% on the month and 2.4% year on year. The risk is that deflation and a Japanese future is not far away for the EU. At the close the FTSE was down 0.44%, the DAX fell 0.72% and the CAC fell 0.34%. In Milan stocks rose marginally up 0.03% while in Spain the IBEX fell 0.45%.
Closer to home the March SPI 200 contract on the ASX is down 23 points to 5119 bid and are likely to be under pressure again this morning as Chinese official PMI was out over the week end and while better than the HSBC measure with a 50.5 print (expansion zone) was still down from a month ago and sits at a 6 month low.
On FX markets the Euro was hardest hit and is back below 1.35 thsi morning sitting at 1.3483. Sterling also came under pressure and sits at 1.6441 in early Asian trade while USDJPY is under 102 and at 101.93 this morning reflects the overall fear factor in markets at the moment. Should stocks fall further and fear rise then the Yen will continue to strengthen pushing USDJPY lower.
It’s been on the cards for a while now but USDJPY looks biased to test support at 100.50 – from there we will see.
The Aussie ended the week under pressure again and is at 0.8744 this morning – it has been trying to build a base but with fear rising in markets it will struggle. Worth noting is that the Turkish Lira is trading above the level it was before the shock and awe of the big rate hike last week and at 2.26 speaks of continued EM fears.
On commodity markets Gold strengthened a little but didn’t gain as much as traders might have thought in the current environment which will worry the bulls. It sits at 1244.20 oz this morning. I got long gold last week but it’s not looking like a great trade because even though gold rallied 3% in January – roughly equal to the S&P 500 – it’s looking a bit wobbly after the last 2 week’s price action.
This week is a big one for gold…it has broken down through the recent uptrend off the multi-year low and unless it cann rally back up above $1251 gold might be head back to $1200 or below.
Crude fell 0.75% to $97.41 Bbl, Dr Copper fell again and sits at $3.21 lb and possibly reflects the fall in global economic sentiment better than almost any other traded asset. The Ags didn’t move too far with Corn up 0.12%, wheat up 0.41% while soybeans rallied 0.6%.
On the data front atawise it is going to be a big week and our trader diary is here - but on the day the week kicks off strongly with the AiG performance of industry survey this morning in AUstralia along with the TD inflation report, ANZ job ads and building permits. China has non-manufacturing PMI and then a raft of PMI around the world today and tonight including the US ISM manufacturing data.
Have a great day
Greg
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NB: Please note all references to rates above are approximate