Good morning. Well that got bearish quickly yesterday. There was an initial move up on the Dax, S&P and FTSE (stop hunt), before all 3 fell, and was just a bit early with the Dax short. Wasn’t expecting a 200 point fall on the FTSE, even though I am in short the rallies mode. We ended up testing the bottom of the 20 day Bianca at 5909 just before the end of the US session which saw a little bounce (coincided with Dow hitting 16000). The mining sector took a bashing with Glencore looking rather ropey at the moment — the shares dropped 25% yesterday. Its the usual story of too much debt and the fall in commodity prices has meant that debt isn’t as serviceable as it was. Over leverage – has killed off many a trader, many a company and even countries (looking at you Greece).
US & Asia Overnight from Bloomberg
Asian stocks fell, with the benchmark index heading for the lowest close since November 2012, as a selloff in U.S. and European markets spread to the region and material shares led losses.
The MSCI Asia Pacific Index retreated 1.4 percent to 122.96 as of 9:10 a.m. in Tokyo, on course to slide 16 percent this quarter. The Standard & Poor’s 500 Index slumped 2.6 percent on Monday amid a rout in commodity and biotechnology shares, while a gauge of global equities fell to a two-year low. Glencore Plc slumped 29 percent, dragging the Bloomberg World Mining Index to its lowest level in almost seven years.
Markets have been whipsawed as China’s economy falters despite stimulus efforts. A gauge of industrial profits fell the most in at least four years, a report showed on Monday, ahead of manufacturing data this week that should provide further clues on the health of Asia’s largest economy. The specter of higher interest rates in the U.S. is also weighing on sentiment, with Federal Reserve officials ramping up rhetoric in favor of a 2015 rate increase.
“The slowdown in China is spreading to other Asian economies, Brazil and Australia, and weakness in emerging countries could echo throughout the overall world economy,” said Toshihiko Matsuno, chief strategist at SMBC Friend Securities Co. in Tokyo. “We still don’t know when market fears will end about China’s slowdown, and because of this investors are turning to cash and safe assets.”
Regional Gauges
Japan’s Topix index lost 2.4 percent after the yen gained 0.6 percent against the dollar on Monday. Australia’s S&P/ASX 200 Index declined 2.3 percent and New Zealand’s NZX 50 Index fell 0.9 percent. Markets in South Korea are closed for a holiday and those in China, Hong Kong and India are yet to open. Taiwan’s equity market is shut because of a typhoon.
E-mini futures on the S&P 500 rose 0.2 percent after the underlying gauge’s drop on Monday sent the measure to a one-month low. The Nasdaq Biotechnology Index sank 6 percent following its worst week since 2011. Valeant Pharmaceuticals International Inc. fell the most in four years.
Data Monday showed household spending climbed more than forecast in August, indicating consumers will help the U.S. economy muddle through any global slowdown.
New York Fed President William C. Dudley said on Monday that the U.S. economy was “doing pretty well” and that the U.S. central bank will probably raise rates later this year. John Williams, head of the San Francisco Fed, also reiterated his expectation that borrowing costs will be boosted in 2015, adding that the jobless rate will probably fall to below 5 percent this year.
“Volatility is going to stay high,” Dan Suzuki, a strategist at Bank of America Corp., told Bloomberg TV in New York. “There’s a general sense that people don’t want to go all into these markets.” [Bloomberg]
FTSE Outlook
I was a bit too optimistic for yesterday expecting the bulls to rise to 6150 before the downside started. I seem to be running 24 hours early with my hunches the past few sessions so I wouldn’t be surprised if we see the 5875/5892 area hold as support for today with a rise towards the daily pivot at 5986. My 2 hour chart has resistance at 6010ish as well and this level could be worth a short to hold for a few days, maybe even to reach 5700. Trends are all still down, volatility is up and I still think we will see 5700 soon – shorting the rallies seems to be the way to be at the moment. The Dow has just snuck below the 16000 level so may well pull back above that today before another leg down to the August lows (15200 area). So for today I am thinking we will be flat to slightly bullish, but should present a good opportunity for shorting, especially at the 6010 area if seen.