16 October 2014

Posted by on 16 October 2014

Good morning

Well what a simply extraordinary night. We have to look back to 2009 for action similar to what unfolded last night.

Ahead

# NZ Business manufacturing Index

# Australian MI Inflation Expectations

# RBA Deputy Gov. Debelle speaks

# U.S Weekly Unemployment claims

# U.S. Industrial production

# U.S. Philly Fed Manufacturing Index

# U.S. NAHB Housing market Index

 

Overnight

# European stocks fell the most in almost 3 years taking their decline from a June high to 11% as fears of renewed recession in Europe and disappointing U.S. data weighed. The EuroStoxx600 fell for a 7th straight day ending down a whopping 3.16%. Stateside the action was simply extraordinary. The blue chip Dow Jones Index was at one stage down 460 points before a late rally saw the index end down (only) 173 points or 1.06%. Interestingly the Dow Transports and Russell 2000 indexes actually ended the day in the black. The selloff wiped out all of the year's gains in major U.S. and European indexes, and the VIX, a key gauge of Wall Street anxiety hit a three-year high (30%+) as investors rushed to protect against further losses. Indeed trading in the VIX saw record volume today.

# Whilst the equity market action was wild it pales in comparison to what ensued in bond markets as the benchmark U.S. 10 year note rallied (yields lower) to its highest level since May 2013. The decline was the largest daily decline in more than 5 years as frenzied trading saw the notes’ yield gap from 2.20% to 2.05% on the open and then continue to plummet to an incredible 1.87% in the first hour of trade. Amazingly the yield came back to close at 2.13%. Could this be the final capitulation of those investors who have been looking for higher U.S. rates since the start of the year?

# The USD was crushed as the clean out of long held positions in stocks, bonds and currency took place. Moves of about 2% were seen across the board. EUR/USD 1.2625 – 1.2885, USD/JPY 107.48 – 105.20, NZD/USD 0.7808 – 0.7994 and AUD/USD 0.8677 – 0.8860 . As with the other asset classes, after the wild ride the USD Index ends only 0.60% weaker. The NZD was the notable outperformer buoyed by the latest GDT auction.

# U.S. Retail sales disappointed and proved a further catalyst for the wild action. As has been the case for several weeks now U.S. data has clearly been softening apart from employment data which of course tends to lag other data. Retail sales, which account for about one-third of consumer spending, dropped 0.3% last month (+0.1% expected). It was the first decrease since January. Economists had expected a decline in ‘core’ sales given a slower pace of sales reported by automakers and a fall in gasoline prices that cut into receipts at service stations. But the breadth of the weakness was surprising. Core sales were down 0.2% when stripping out automobiles, gasoline, building materials and food services. Economists polled by Reuters had predicted an increase in this reading (+0.1%), which provides a pretty good gauge of overall consumer spending.

# UK unemployment readings provide a rare bright spot in the nights proceedings as unemployment fell from 6.1% to 5.9%, the lowest level since the start of the GFC.

# Prices showed signs of levelling off in Fonterra’s latest GDT auction. After 7 months of almost relentless declines the headline index gained 1.4%. The average winning price was US$2,640 a tonne. Whole milk powder - the most important category for New Zealand producers - sold for US$2503 a tonne, up 3.1%from the last auction early this month.

# Commodities, as a whole, dropped to a 5 year low as copper and zinc slumped amid concern that demand is slowing in China, the world’s biggest consumer. The Bloomberg Commodity Index (BCOM) of 22 raw materials fell 0.8% slumping to the lowest since July 2009. Oil is languishing in a bear market, with the International Energy Agency predicting the lowest demand growth since 2009. Brent crude dropped to as low as $83.37 a barrel in London, the lowest level in almost 4 years, before trading little changed.

 

Cheers G.

Graham Parlane - BBY (NZ) Limited, a specialist advisor in Futures - FX - CFD - Options - Shares - Gold - Silver - Commodities - Managed Accounts - DIMS

Tags: Equities, EuroStoxx, S&P, Trader, Broker, FX, Foreign Exchange, Futures, Futures trading, Currencies, Commodities, CFDs, CFD trading, Europe, FED, US, FOMC, BoE, UK, CPI, Inflation, USD, USDJPY, JPY, AUD, NZD, 10 year bond yields, Unemployment