Stock markets in the US and Europe spent the day under pressure with the Dax falling 2.6% while the FTSE fell 1.2% and the S&P dropped 1.0%. Capital flowed out of risk markets through the day putting pressure on resource currencies including AUD, NZD, CAD, RUB MXN and ZAR.
Defensive plays attracted renewed interest through the day particularly JPY which broke out against USD and CAD and gained ground on EUR. This breakout rally kept the pressure on the stocks of Japanese exporters driving down the Nikkei
As the day progressed, however, it became clear while sharp and significant, this selloff is likely more of a significant trading correction following a major rally than the start of a new downtrend for a number of reasons:
Gold started off the day strong but faded into the afternoon indicating that bears may not be able to sustain dominance for more than short periods of time.
While weak service PMI reports impacted trading in continental Europe, better than expected service PMI reports for the US and UK cushioned the blow in their markets.
Tesla Motors took an early hit after Q1 production came in below expectations but clawed back into the green over the course of the day as traders opted to focus on strong order flow, indicating momentum stocks continue to attract support. This also indicates that while there is some uncertainty about the upcoming earnings season, positive suprises could find an audience.
WTI crude oil, which was one of the first markets to become overbought and had been leading the way back downward started to rebound first around mid-afternoon in the US and then late in the afternoon in response to a drop in API inventories. Positive trading action following an oversold technical reading suggests that while some market corrections may still have room to go, markets may only retrace so far and then resume the recovery trends that started six weeks ago.
In terms of trading today, China may attract attention with service PMI on the way and traders looking to see if mainland markets continue to avoid the weakness that has gripped other markets. In Japan traders may be looking to see if the strong Yen weak stocks trend continues or reverses.
For the US we have more primary election results tonight. Polls in Wisconsin had Cruz and Sanders leading over Trump and Clinton. Tomorrow brings more Fed commentary and minutes from the last meeting which could influence action in USD. Oil may also be active through the DOE inventory reports. Canada PMI and WTI action could impact trading in CAD ahead of Friday’s Canada employment figures.
There have been no major announcements after the US close today.
Significant announcements released overnight include:
API crude oil inventories (4.5 mmbbls) vs previous 2.6 mmbbls
US trade balance ($47.1B) vs street ($46.2B)
Canada trade balance ($1.9B) vs street ($0.9B)
Germany factory orders 0.5% vs street 2.2%
Germany factory orders/month (1.2%) vs street 0.3%
Sweden industrial production 3.8% vs street 4.0%
Eurozone retail sales 2.4% vs street 1.9%
Service PMI reports:
US Markit service PMI 51.3 vs street 51.2
US ISM non-manufacturing PMI 54.5 vs street 54.2
UK 53.7 vs street 53.5
Germany 55.1 vs street 55.5
Sweden 54.9 vs street 56.7
Spain 55.3 vs street 54.5
Italy 51.2 vs street 53.9
France 49.9 vs street 51.2
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)
TBA US Wisconsin primary results
10:00 am AEST NZ QV house prices previous 11.6%
11:45 am AEST China Caixin service PMI previous 51.2
3:00 pm AEST India service PMI previous 51.2
12:00 am BST UK BRC shop prices previous (2.0%)
7:00 am BST Germany industrial production street 0.4%
11:00 am BST Sweden Riksbank Ingves speaking
10:00 am EDT Canada Ivey PMI street 54.8 vs previous 53.4
10:30 am EDT US DOE crude oil inventories street 2.85 mmbbls
10:30 am EDT US DOE gasoline inventories street (1.1 mmbbls)
12:20 pm EDT FOMC Mester speaking
2:00 pm EDT FOMC March meeting minutes