It appears that an overdue correction may be getting underway in world stock markets. Although ECB stimulus and continued growth in the US economy have pushed several indices to all-time highs, signs of exhaustion have emerged particularly with the Dow and S&P stalling just below 17,000 and 2,000 respectively and the S&P/ASX stalling below 5,555.
This pause appears to be due to a combination of fully valued markets with a slowdown in scheduled news flow for the next few weeks with stocks between earnings seasons, the end of the quarter coming and summer holiday season approaching. We are now starting to move well into the mid-May-mid-October period which has historically been seasonally weaker for stocks and markets have held up well so far but appear to be teetering.
Today, indices have started to retreat with the Dax
falling back under 10,000 and the Dow falling back under 16,900 to suggest that a common seasonal correction may be getting underway. The World Bank has been getting much of the blame after it cut its global GDP growth forecast and its forecasts for several major developed and emerging economies. The cuts were primarily due to the rough winter in the US and Ukraine tensions, but these causes have been well known in the markets for months. Essentially then, it appears that the World Bank news is being used by some as an excuse for a correction that has been overdue anyway.
Currency and commodity action meanwhile shows that traders remain focused primarily on the ramifications of last week’s ECB decision to increase monetary stimulus. Gold is advancing once again while EUR remains under pressure as planned increases to the money supply depress the value of the EUR.
Crude oil remains well supported as traders anticipate monetary stimlulus in Europe and China could boost energy demand. Resource currencies also continue to rally with AUD, SEK and CAD posting gains. GBP is on the rebound, boosted by a positive UK employment report but remains stuck below $1.6800.
The strongest and potentially most active major currency on the day is NZD which continues to climb ahead of today’s RBNZ interest rate decision. Although the street is expecting a third quarter-point hike in a row, recent weakness in the Kiwi dollar suggested some traders were thinking otherwise. In addition to the decision, the statement could spark activity particularly if the central bank makes any comments related to the value of the dollar or particularly if it tries to talk the dollar down again or threatens another intervention.
Economic reports released overnight and this morning include:
UK jobless claims (27K) vs street (25K)
UK unemployment rate 6.6% vs street 6.7%
UK rolling 3M jobs change 345K vs street 270K vs previous 283K
India exports 12.4% vs previous 5.3%
India imports (11.4%) vs previous (15.0%)
South Korea unemployment rate 3.7% vs street 3.6%
Japan corporate prices 4.4% vs street 4.1%
Australia consumer confidence 93.2 vs street 92.9
The World Bank made a number of changes to its 2014 GDP forecasts including:
Globe cut to 2.8% from 3.2%, 2015 maintained at 3.4%
US cut to 2.1% from 2.8%
Japan cut to 1.3% from 1.4%
China cut to 7.6% from 7.7%
Russia cut to 0.5% from 2.2%
India cut to 5.5% from 6.2%
Brazil cut to 1.5% from 2.4%
Economic reports due later today include:
10:30 am EDT US crude oil inventories street (1.5 mmbbls)
10:30 am EDT US gasoline inventories street 1.0 mmbbls
5:00 pm EDT New Zealand interest rate 0.25% increase to 3.25% expected