It looks like we may have has another near term washout in world stock markets overnight with major Asia Pacific indices plunging 3-4% but European and US indices bouncing back and retaking some of yesterday’s lost ground. Commodities are also on the rebound, but the most notable action has been in resource stocks where Glencore has gained 11% today with traders thinking yesterday’s 30% selloff may have been overdone.
It’s been relatively quiet for news overnight but today’s trading may represent the calm before the storm as a number of major data reports are due over the rest of the week. Tomorrow brings US ADP payrolls, Germany employment and GDP for the UK and Canada, Thursday features manufacturing PMI from around the world and Japan employment, Friday wraps up a big week with the headline US nonfarm payrolls report.
The three key things traders may look at in the upcoming data include: What is going on with China’s economy, is it as bad as has been feared? What does world economic activity mean for resource demand? and Does US data suggest the Fed could raise interest rates this month?
Since the last FOMC meeting, a number of voting members have been out speaking (and doing damage control after an overly dovish read of member projections sent stocks lower). FOMC members Yellen, Lacker, Williams and Dudley have all indicated the Fed remains on track to raise rates this year and/or that October is a live meeting for a decision. Hawk Lockhart and dove Evans statements came pretty much as advertised.
Recent US political developments, have made October more likely for an increase than December. The pending retirement of House Speaker John Boehner at the end of October means that a showdown over the budget looks unlikely with Republicans focused on picking new leadership. Press chatter suggests a short term funding bill to December could pass with a bigger showdown set for early to mid-December which coincides with the US hitting its debt ceiling.
This means that the US government could be heading for a holiday shutdown. Since many government offices essentially shut down in late December anyway, this could be seen by the Republicans as a time to make a stand and statement without making people too mad at them going into a Presidential Election.
It also means that the US government could be in or near shutdown mode when the Fed is scheduled to meet in December. Although, as an agency, the Fed should remain operating and able to have a meeting but the Treasury would be closed so there would be no outside support to any move. This makes October now the optimal date for liftoff this year.
Which means that we are now into the last round of data before the next Fed meeting. FOMC member statements on being data dependent may now be seen as an escape clause, not looking for strong data to justify a hike but rather that only weak data would throw them off course. Stocks and commodities have certainly acted that way in the last week, falling on weak economic numbers and other dovish indicators and rallying on strong economic news or hawkish indications.
On top of all this, we appear to be nearing the later rounds of seasonal declines in stock markets. The Hang Seng, copper and the Dax holding their August lows potentially putting in double bottoms and a bear trap rebound in the Nikkei
overnight, and street analysts apparently cutting their S&P forecasts in droves all suggest we could be nearing the point of maximum pessimism and approaching the end of this year’s seasonal selloff.
While this appears encouraging from a contrarian standpoint, the US started to decline after overseas markets and could bottom out a bit later with a retest of the August lows still possible in North America as well.
With so much news due in the coming days, we may see traders spend the day preparing for a big three days that could bring a number of trading opportunities from many directions.
There have been no major corporate announcements this morning.
Significant announcements released overnight include:
India RBI repo rate surprise 0.50% cut to 6.75% a 0.25% cut had been expected
Canada industrial prices (0.3%) vs street (0.5%)
Canada raw material prices (6.6%) vs street (7.5%)
Spain retail sales 3.2% as expected
Spain consumer prices (0.9%) vs street (0.5%)
Norway retail sales 0.4% vs street 0.3%
Germany consumer prices 0.0% vs street 0.1%
Eurozone economic confidence 105.6 vs 104.1
China leading index 98.2 vs previous 98.4
Upcoming significant announcements include:
10:00 am EDT US consumer confidence street 97.0 vs previous 101.5
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