Yesterday’s 8.5% drop in Shanghai and 4-5% drops in Tokyo and Hong Kong yesterday sent shockwaves through world markets during the European and North American trading days. Many markets plunged on their open with a 1,000 point drop in the Dow out of the gate attracting particular attention.
Because it’s such a light week for economic and corporate news, trading is being driven mainly by technicals and emotion even more than usual. A number of markets broke down to 52-week lows and took out major round numbers like 10,000 for the Dax
and Ibex, 6,000 for the FTSE, and 2,000 for the S&P 500. The Dow spent much of the day following its initial selloff and rebound flirting with the 16,000 round number before finally finishing below it down over 500 points on the day. .
Major European indices spent the day pinned to the mat and finished down around 5% on the day. Following an initial washout, where US indices caught up to their falling peers all at once, US markets did rebound through the morning on short covering and bargain hunting and but then weakened again in the afternoon.
High volatility may continue through today’s Asia Pacific, potentially setting up opportunities for significant intraday trading swings in both directions. Let’s see what today may bring in terms of intervention and support measures out of China. The one thing we have learned though is that the measures previously introduced appear to be dragging out the problem and delaying days of reckoning rather than sidestepping them. With many markets getting really oversold bears and bargain hunters could battle it out through the week.
Commodity markets continue to be impacted by fears that recent instability in financial markets could impact the broader economy in China and around the world. Both WTI and Brent crude oil have fallen over 5% today with WTI dropping to within a few dollars of its 2008 low. Copper also remains under pressure along with palladium and platinum although corn and wheat managed to stabilize.
In currency markets there has been a clear movement of capital out of resource and risk currencies like CAD, AUD and NZD into defensive plays. JPY was the biggest beneficiary today, staging a major catch up rally, along with CHF. Gold, however, which was the first defensive to rally last week turned the other way today, falling back along with silver suggesting that the current selloff may be getting into the later stages.
USD had been weakening on speculation that sliding stock markets could force the Fed to hold off raising interest rates, particularly relative to rebounding continental currencies like EUR, CHF, SEK and NOK. Late in the day, however, Atlanta Fed President Lockhart indicated he still expects the FOMC to raise interest rates this year, so we could potentially see a reversal swing
in some of the majors.
There have been no major corporate announcements after the US close today.
Significant announcements released overnight include:
There have been no major economic announcements in North America or Europe today.
Upcoming significant announcements include:
10:00 am AEST Australia leading index previous 0.2%
11:00 am AEST China leading index
12:00 pm AEST NZ 2-yr inflation estimate previous 1.85%
7:00 am BST Germany Q2 update street 1.6%
9:00 am BST Germany IFO bus climate street 107.6
9:00 am BST Germany IFO current assessmt street 113.9
9:00 am BST Germany IFO expectations street 102.0
9:00 am BST Poland unemployment rate street 10.1%
9:00 am EDT US FHFA house price index street 0.4%
9:45 am EDT US flash service PMI street 55.1
10:00 am EDT US CBO budget and economic outlook
10:00 am EDT US new home sales street 510K
10:00 am EDT US consumer confidence street 93.4
10:00 am EDT US Richmond Fed street 10 vs previous 13
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