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.

Your content will need to be approved by a moderator

Guest
You are commenting 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
      386
  • Our picks

    • Another blow to economic growth - EMEA Brief 15 Feb
      Weak retail figures in the US have spilled over to most major stock markets, with European stocks set to open lower this morning. The 1.2% decline in retail sales for the month of December, the biggest drop in almost ten years,  have brought new fears that we are facing a global economic slowdown. The DJIA closed 104 points lower at 25,439.39, the S&P 500 closed 7 points lower at 2,745.73, whilst the Nasdaq managed to close in the positive with a gain of 6.6 points at 7,426.96.
      • 0 replies
    • A little bit of everything - APAC brief 15 Feb
      A little bit of everything: It certainly wasn’t the highest-impact day market participants have experienced so far this year, but there was a spoonful of everything, thematically speaking that is, driving the macro-economic outlook for markets in 2019. To keep it high level, there was a series of significant growth-related data released out of all three of the world’s major economic geographies – China, Europe and China – plus a healthy smattering of geopolitics and corporate news to keep traders interested. Only, if you look at the price action, one might say that it didn’t amount to terribly much. Global equities are taking the middle road, posting a mixed day, as Wall Street creeps towards its close at time of writing; though some shifting in currency, rates, bonds and commodities markets has occurred.
      Markets immune to trade-war headlines: Fresh trade war headlines are at the top of the list of headline risks, however in contrast to what’s been seen in the past, the reactions have been muted. Arguably, and barring any news that hints at a true resolution in the trade war, stories that the US and China are getting along just fine are becoming (relatively) ineffectual. Yesterday saw the news that the Trump administration is considering pushing the White House imposed March 1 deadline for trade negotiations back another 60 days. The developments saw the standard risk assets shift – Australian Dollar-up, Asian stocks-up, US futures-up, commodities-up – but compared to the massive relief rallies seen in the past, the price action indicated a market that’s wanting more than just piecemeal developments in trade-negotiations.
      • 0 replies
    • Post in Bonds and Gilts
      "If one looks at the German Bund chart then it looks very interesting indeed. The trend is upwards and the price action is supporting this over the past 12 months which could possibly mean there has been a shift in capital and strategy for some of the largest players in the bond market." Join the debate.
  • Latest Forum Topics

×