US indices first half rally had stalled out over the summer but today’s broad based selloff provided the first indication that a seasonal selloff may be getting underway. The Dow fell over 200 points, the Russell 2000 lost over 2% and the S&P completed a bearish head and shoulders top pattern. Transports fell by only 0.6% helped by falling fuel prices, while Biotechs were the worst sector falling 3.7% on speculation Hillary Clinton could win and bring in policies hostile to the industry
There were a number of factors behind the decline:
Stock prices have been near all-time highs lately and expectations for this quarter’s earnings had been running high. Alcoa’s big miss and guidance cut, however brought the prospect of a weaker quarter due to the impact of election uncertainty to the forefront. More misses or murky guidance could have a negative impact on indices un the coming days and weeks.
The US Dollar continues to rally on speculation of a Clinton win (attracting capital fleeing uncertainty in the UK and Europe and looking for political and economic stability in the US). The higher Dollar, however makes US businesses less competitive relative to competitors in other countries which could cut into corporate earnings prospects.
The price of oil dropped back on mixed news. There are more informal discussions going on at an oil conference in Turkey this week. Russia has been the centre of attention with Putin apparently prepared to support a freeze or cut deal generally but Russian participation less certain with Rozneft indicating it would prefer to pass but would participate if forced to. Meanwhile record OPEC production in September means that deeper cuts could be needed to stabilize the market. This weighed on energy stocks although for not WTI remains above $50 awaiting more news and US inventories later this week.
The USD rally and commodity declines have sent Australian resource stocks lower so far today along with AUD and NZD. JPY, however appears to be stabilizing and a recent advance in the Nikkei
appears to have stopped. GBP and EUR continue to get hammered lower indicating growing concerns Brexit could impact economies on both sides of the English Channel. Tough talk out of Europe and unfounded cries of doom from some in the UK despite the positive economic evidence hasn’t been helping matters by undermining confidence.
There isn’t much in the way of corporate or economic news so focus may remain squarely on the US election and on Brexit over the next 24 hours. We could see some positioning in NZD ahead of a flurry of economic figures from New Zealand tomorrow. China trade and inflation data are due later in the week along with US retail sales.
There have been no major announcements after the US close today
Significant announcements released overnight include:
Canada housing starts 220K vs street 190K
UK same store sales 0.4% vs street (0.3%)
Germany ZEW current 59.5 vs street 55.5
Germany ZEW expectations 6.2 vs street 4.0
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
10:30 am AEDT Australia consumer confidence previous 101.4
10:50 am AEDT Japan machine orders street 7.9%
4:00 pm AEDT Japan machine tool orders previous (8.4%)
7:45 am BST France consumer prices street 0.4%
10:00 am BST Eurozone industrial production street 1.5%
8:00 am EDT FOMC Dudley speaking
9:40 am EDT FOMC George speaking
2:00 pm EDT FOMC meeting minutes