tock markets around the world roared back to life reversing much of Monday’s selling climaxes with big gains, particularly in Europe where the FTSE rose 3% and the Dax soared nearly 5%. As the US trading session progressed into the afternoon, however, stocks and commodities like crude oil increasingly gave back their early gains.
At first, it seemed the slippage was from normal backing and filling after perhaps climbing too much too soon, but major US indices closing well into the red indicated there’s something more going on. Bears regaining the upper hand so soon suggests that once again, concerns have been growing about what could happen in China today as its market open approaches.
While the Shanghai market closed lower yesterday, Hong Kong finished in positive territory and a lot has happened since then. Overnight, the PBOC has tried to ride to the rescue announcing cuts to bank reserve requirements, lending and deposit rates while the government has cut stamp taxes on trading. It remains to be seen if these cuts can help shore up support after previous ones failed, but we’ll see.
Perhaps more importantly, there have been supports that the CSRC regulator has given up on trying to support markets through artificial measures. Considering that previous measures have muddied the waters, added to confusion and likely dragged out the stock market crisis, backing away can be seen as a potentially good thing that may enable markets to find an appropriate level and carve out a bottom like other bourses around the world appear to have done.
The trading action in stocks and formation of V bottoms indicate a selling climax has occurred and that the 2015 lows for many markets may now be in. That being said, we remain in the seasonally weakest time of the year for stocks, so upside in rallies may remain limited, the potential remains for significant swings
in both directions and we could yet see a retest of the lows a month or two down the road.
Currency markets have seen similar swings to stocks today. The last 24 hours had been dominated by a big rebound in resource currencies like AUD, NZD and CAD while defensive plays like gold, JPY and CHF sold off. In the last few hours, this trend has reversed again with each side giving or taking back some ground.
CAD in particular has been dropping as crude oil retreated through the afternoon, but WTI has turned upward again following a big drop in API oil inventories so oil and oil sensitive currencies may remain active through tomorrow’s DOE inventory report.
Similarly, USD has been the top performer over the last 24 hours with the stock and commodity rebound plus comments from Atlanta Fed President Lockhart yesterday keeping a potential September interest rate increase on the table. The greenback could be active again Wednesday as durable goods orders keep the Fed speculation pot boiling after a mixed bag of numbers Tuesday.
Based on all of this, it looks like today could be another active on in Asia Pacific markets. Initial trading may be dominated by the response to overnight policy moves in China. NZD could be active on today’s New Zealand trade figures. JPY and the Nikkei may also be active and could move in opposite directions again on a combination of stock market sentiment and whether capital is flowing in or out of defensive havens.
Gold remains a key indicator of greed versus fear as it has started to rebound once again with stocks falling just as its retreat the first two days of this week supported the big share bounce.
There have been no major corporate announcements after the US close today.
Significant announcements released overnight include:
People’s Bank of China cut bank reserve requirements by 0.50% to 18.00%
People’s Bank of China cut lending and deposit rates by 0.25%
US API crude oil inventories (7.3 mmbbls) vs previous 2.5 mmbbls
US new home sales 507K vs street 510K
US consumer confidence 101.5 vs street 93.4
US Richmond Fed 0 vs street 10 and previous 13
US FHFA house price index 0.2% vs street 0.4%
US flash service PMI 55.2 vs street 55.1
Germany Q2 GDP update 1.6% as expected
Germany IFO bus climate 107.7 vs street 107.6
Germany IFO current assessmt 114.8 vs street 113.9
Germany IFO expectations 102.2 vs street 102.0
Poland unemployment rate 10.1% as expected
Upcoming significant announcements include:
8:45 am AEST NZ trade balance street ($600M)
3:00 pm AEST Singapore industrial production street (4.0%)
8:00 am BST Sweden consumer confidence street 97.4
8:30 am BST Sweden trade balance street SEK 4.0B
9:00 am BST Norway unemployment rate street 4.3%
11:00 am BST UK CBI retail sales street 18
8:30 am EDT US durable goods orders street (0.4%)
8:30 am EDT US durables ex transport street 0.3%
10:30 am EDT US crude oil inventories street 2.0 mmbbls
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