Downward momentum in stocks continued overnight with the Nikkei posting a 4%+ loss and the Hang Seng returning to trading from a holiday with a 2.8% loss. European indices started the day out lower with the Dax down over 100 points. As we approach US exchanges opening, however, indices in Europe have started to rebound and US indices have been trading slightly higher.
It appears that traders have paused for now to assess the technical damage from yesterday’s selloff before the big announcements to come later in the week including US payroll reports Wednesday and Friday and BoE and ECB meetings on Thursday.
The selloff we have seen to start the year has been difficult, but not unexpected. Recall in our 2014 Outlook, I indicated that following the end of QE1 and QE2 major indices around the world were down 10-15% within three months. Comparing yesterday’s closes of major indices with their 52-week high closes shows that this type of correction appears to be well underway particularly in the Asia Pacific region. Other markets, however, may only be midway through the unwinding potentially needed to clear the air. Note that Canadian stocks which lagged last year and thus did not get as overinflated by QE money as some of its peers has not fallen as far in the tapering adjustment.
Dow Industrials down 8.3%
S&P 500 down 5.7%
NASDAQ 100 down 5.1%
S&P/TSX Composite down 3.6%
DAX down 6.3%
S&P/ASX down 6.3%
Nikkei down 14.0%
Hang Seng down 10.9%
In commodity markets natural gas is rallying again today, gaining 5%+ and retaking $5.00 as more winter storms move through. It remains well short of previous highs and could be active as we move through what appears to be the seasonal peak.
Where we have seen a lot of action overnight is in currency markets, particularly in Resource Dollars. AUD has soared after the RBA held interest rates and dropped its easing bias, indicating that the decline in AUD has done a lot of the heavy lifting in terms of stimulus already. This shift toward neutrality also lit a fire under NZD overnight where the central bank has been among the more hawkish.
The Canadian Dollar has been rebounding this week as well, While a potential improvement in the prospects for approval of the Keystone XL pipeline has been getting the credit, this just appears to be the excuse for a normal correction of an extremely overextended move. USDCAD
still holding above $1.1000 suggests this still appears to be a pause in a bigger trend.
USD has been holding steady today indicating that traders do not expect recent soft data out of the US, which may have been distorted by winter storms and cold temperatures, to impact the Fed’s tapering program. Defensive plays like gold, JPY and CHF find themselves retreating today unable to build on yesterday’s gains.
Suncor Energy $0.66 vs street $0.77, cuts 2014 production guidance to 525K-570K boe/d from 565K-610K boe/d, raises dividend by 15%
WestJet Airlines $0.52 vs street $0.51
Archer Daniels $0.77 vs street $0.85, revenues $24.1B vs street $25.3B
Yum! Brands $0.86 vs street $0.79
Anadarko $0.74 vs street $0.91
Australia interest rate decision 2.50% no change as expected, but removed easing bias
UK construction PMI 64.6 vs street 61.5 vs previous 62.1
Spain unemployment 113K vs street 100K vs previous (107K)
Economic reports due later today include:
10:00 am EST US factory orders street (1.8%)
10:30 am EST Mexico manufacturing PMI