On Friday we got the Yellen bounce and yesterday we got the commodities collapse, as China concerns and low commodity prices prompted a sharp selloff in the mining sector, while comments from IMF chief Christine Lagarde about the potential for further global growth downgrades knocked broader equity markets sharply lower. The latest gauge of industrial profits for Chinese companies showed an 8.8% fall in August, and though some of that may have been due to the disruption caused by the Tianjin port explosion and the World War two commemorations, investors didn’t hang around to find out. It still remains far from clear how weak or otherwise economic conditions in China are, but the weakness of the manufacturing sector, remains a real concern. We will get further insight later this week, with the latest Caixin manufacturing and services PMI, numbers for September, alongside the official number on Thursday. In Europe mining giant Glencore led the way lower getting absolutely crushed, losing nearly a third of its value, after a broker note questioned the viability of the company if commodity prices remained at current levels, while the FTSE350 mining index hit levels last seen at the end of 2008, as mining stocks got pummelled by a hefty dose of shock and ore. Having launched at an IPO price of 530p in 2011 it is a hefty fall to earth for a company that only recently placed shares at 125p and closed yesterday at 69p, as investors bailed on concerns about the company’s debt pile. A good number of miners racked up significant amounts of debt in the wake of the China and US stimulus splurge of 2008/2009 and with commodity prices cratering there is a fear that unless commodity prices rebound quite quickly at a time when the US looks set to pull the trigger on a rate rise, a lot could find themselves in big trouble. The automotive sector also suffered another wave of selling after it was announced that about 2.5m Audi cars had the “defeat device” software installed in their engine management systems. US markets continued the negative theme yesterday with the Hillary Clinton’s tweet from last week about “price gouging” continuing to weigh heavily on the biotech sector, while Apples shares couldn’t buck the trend despite record iPhone 6s sales. Yesterday’s US data didn’t really shed any new light of when to expect a rate rise, with Fed officials once again insisting that October was a “live” meeting, and that oil and US dollar influences remain “transitory” in the context of an overall decision. The latest Dallas Fed manufacturing index for September joined the other regions in posting a negative reading for September, following on from the Empire, Philadelphia and Richmond Fed with disappointing numbers. Continued uncertainty about the timing of a Fed rate hike has continued to dominate sentiment with William Dudley of the New York Fed still insistent that he expected to see a rate rise this year, but with the caveat that circumstances could delay it, while the head of the Chicago Fed Charles Evans reiterated his belief that 2016 was probably a more conservative option. Here in the UK we get the latest consumer credit and mortgage approval numbers for August, which are expected to improve on July’s numbers. We also get sight of the latest CBI retail sales numbers for September which are expected to show an improvement on the August numbers. Against the backdrop of this uncertainty European stock markets look set to pick up where they left off yesterday, after Asian markets also rolled over taking up the baton of weakness overnight, as markets in Asia looked set to post their worst quarterly losses in six years, as uncertainty about the strength of the global recovery continues to grow. Inevitably the focus will now shift towards the raft of economic data from Europe, China and the US later this week, and any further policy reactions from central banks. EURUSD – continues to find support at the 50 day MA now at 1.1154 the potential for a move back towards 1.1400 remains. Only a move below the lows this month at 1.1080 suggests a move back towards 1.0820. GBPUSD – continues to find it difficult to rally declining for the seventh day in a row, which increases the risks of a move towards the 1.5000 level. We didn’t make a new daily low though, holding above the 1.5130 area and last week’s low We need to recover back through the 1.5330 area to stabilise and suggest a return to the 1.5400 area. EURGBP – we need to break above the resistance at the 0.7420 area and August highs, or the support at the 0.7320 area to determine the next move here. A move through 0.7420 suggests a move back to the May highs at 0.7485. Below the 0.7320 area retargets a move towards 0.7240. USDJPY – downside pressure prevails while below the resistance at 121.30 as the recent range trading price action continues to compress the price action. Trend line support now comes in at the 119.20 area. The US dollar still looks vulnerable to a return to the 116.20 area seen a few weeks ago. CMC Markets is an execution only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
Shock and ore as growth concerns knock mining sector to levels last seen in 2008
01:00, 29 September 2015