Jump to content

APAC brief - 21 Nov

Sign in to follow this  
MaxIG

Written by Kyle Rodda - IG Australia

I see red: The global equity rout continued last night, and out to the furthest horizons it was a sea of red. There was very little reprieve no matter where one spun the globe. The Asian session saw China's equity bounce faded again, joining the suffering experienced by the Nikkei, Hang Seng and ASX200; European indices continued their orderly decline, underpinned by a 1.6 per cent drop in the DAX and a 0.76 per cent fall in the FTSE 100; and with less than an hour to trade, Wall Street is clocking losses, led by the Dow Jones, of as much as 2 per cent. The themes aren't wildly different from before, it's just now the story is being read (and bought-into) by a growing mass of traders: global growth is late-cycle, earnings have peaked, and tighter financial conditions means there's no hiding from the risks.

1.jpg

Seeking shelter: Not that market participants aren't searching for places to hide. The problem is, it would seem, that there aren't too many good places to find shelter. The classic safe-havens were given a good crack overnight: US Treasuries were sought out, giving the US Dollar a boost after several days of declines. Yields on US Treasuries were steady; however, this appears more a function of the residual need to maintain pricing of interest rate expectations. Gold was slightly lower because of the stronger USD alone, as was the EUR/USD, which traded into the 113-handle again, and the Pound, which dropped into the 1.27 handle. Even the Japanese Yen dropped slightly as traders scurried around, though it must be said it is far-off its recent lows.

The losers: The flip side to the bidding-up of safe-havens was a smack-down of riskier and/or anti-growth assets, of course. The Australian Dollar is trading into the low 0.7200's and the Kiwi Dollar has slipped below 0.68. The Chinese Yuan edged to 6.94 and broader emerging currencies felt the pinch, again. Commodity prices fell on fears of slowing global growth: copper is off (but it did bounce of the day's lows), and of local relevance, iron ore has plunged by over 2 per cent. Bitcoin too has finally exhibited its status as risky and speculative "asset", spiralling further, to just over $US4,500, at time of writing. Credit spreads continue to widen, especially in investment grade corporate bonds, portending sustained weakness in global equity markets.

Fresh falls for oil: Amid all this selling and search for safety is the conspicuous matter of oil: the black stuff arguably fared worst of all overnight, shedding over 6 per cent. The concerns regarding a massive global over supply continued, as analysts forecast higher inventories and a higher-likelihood that major oil producing countries will prove unable (or unwilling) to collectively cut production. The dynamic has prices of Brent Crude trading at $US62.50, and that of WTI at around $US53.50. Energy stocks were some of the worst performing for the overnight session -- a theme that is expected to persist today –  while the oil sensitive Canadian Dollar fell to 1.33 on fears of a deterioration in that countries terms of trade.

2.jpg

Less news, more uncertainty: The volatility experienced in just the first two days of the week -- the VIX spiked to about 22 again overnight -- gives further credence to the notion that light data weeks exaggerate price action. It's like existing in a vacuum, whereby a lack of air resistance makes everything move much more swiftly. In good times, this doesn't feel so bad:  it's an excuse to buy, and everyone is mostly happy. However, in this new period of uncertainty, the opposite proves true: less information means fewer opportunities to find certainty and reassurance in data. As such, trading picks up a velocity that exaggerates what might otherwise be tempered movements in markets, spawning vicious cycles where fear feeds and multiplies on more fear.

ASX yesterday: The ASX200 hasn't been spared from this cycle -- and feels an immediate escape will not be forthcoming. The index fell with far greater force than was anticipated during yesterday's, as the broad-based evacuation from equities persisted. The tech-wreck theme has spilled over into our market: momentum chasers are being washed aside, legging high-multiple growth stocks. It was the IT and healthcare sectors that subsequently experienced some of the highest activity and losses, the culmination of which saw the ASX200 come conspicuously close to the oft-mention support level around 5625, or so. Buyers entered the market at that level, allowing the market to staunch its losses seemingly as bargain hunters searched for value in the large caps. However, it was only enough to curb the session's losses to about 0.4 per cent.

ASX today: The lead handed to us by Wall Street has SPI futures indicating quite a considerable drop for the ASX200 at today's open of 58 points, or about 1 per cent. If that were to eventuate, support at around 5625 would quickly give way and expose the key-psychological mark of 5600 to a challenge. Considering what’s been witnessed on markets this week, today may once again be a case of what can lose least. The utilities space and other defensive sectors look to be the early favourites for that title, but it may be one that won't be won without sustaining a few battle scars. Given the overnight moves, the materials sector and energy stocks are presenting as the likely biggest losers, with activity in the banks perhaps the uncertain variable considering a bounce in the Big 4 late yesterday.

3.JPG

Sign in to follow this  


0 Comments

Recommended Comments

There are no comments to display.

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
You are posting as a guest. If you have an account, please sign in.
Add a comment...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

  • Blog Statistics

    • Total Blogs
      3
    • Total Entries
      517
  • Latest Forum Topics

  • Our picks

    • Something Interesting
      "USDCNH is flying up to key resistance could mean Govt interventions coming or are they going to let it go through 70000?"
      • 4 replies
    • Customise Stochastic and KDJ indicators on charts
      On the back of recent client feedback you can now customise the Stochastic and KDJ indicator levels on IG charts.
      • 0 replies
    • Stock markets continue to recover: APAC brief 17 May
      Stock markets continue to recover: Global stocks have maintained their bounce. It’s looking more like a market that is searching for it’s next high now, as price action, from a technical perspective, suggests the recent wave-lower is over. Hence, from here, considering trade-war risks, and therefore anxiety in the market, remains high, the matter becomes whether stock indices are preparing to pop in a new higher-high, or whether what we will see is a new lower-high. The result of that simple binary will inform market participants what the broader trend is in the market: are we still trending higher, or are we seeing the start of a trend reversal?

      The litmus test to come: This commentary pertains primarily to the S&P500, which has been the bellwether for global equities, recently. But it could equally be said of the ASX200, too, which demonstrated its resilience yesterday. Just sticking to the S&P500, the price set-up offers some potentially interesting insights about the world, in the weeks to come. Another high for US stocks is another record high and a clear continuation of that market’s bull run – defying, really, what is a deteriorating global backdrop. If this fails to occur, then talk will certainly emerge whether stocks are beginning a prolonged period of weakness, in line with clearly softer fundamentals.
      • 0 replies
×
×