(WEDNESDAY 3RD AUGUST- 08.50 - JAMES GERRISH)..Risk got ripped off the table again overnight with stocks and commodities sharply lower while US Treasuries were bid higher. It all started with concern coming from Europe as Italian and Spanish bond yields ticked higher (Spanish 10 year at 6.28% + Italian 10 year at 6.12%).
We then had another round of below par data prints in the US with the main one being Personal Spending for June that had its first fall since September 2009...ad this to concerns that recent US data had been weak across the board at a time when the US is trying to reduce spending + concern that S&P may cut their AAA credit rating on the US and we start to see why investors are a little nervous. (incidentally, Moody's confirmed the US AAA credit rating last night)
The US MKT closed on its lows with the DOW JONES down -265 pts while the S&P 500 fell -2.56%. All sectors were lower but the biggest weight came from the Industrials, Materials & Consumer Services that were all down more than 3%.
We're now on critical levels on the US indices with the DOW JONES retesting the recent low of 11860...Tonight's session will be critical from a technical standpoint and if we don't hold here, things could get ugly.
Ultimately, I think last nights session was overdone...an overreaction to a number of recent events and we saw indiscriminate selling. But really, I guess my recent form in picking the MKTs short term direction has been patchy so take that view with some degree of caution! However I must say that MKTs are looking for a wash out style event, where all the weak longs put up their hands and sell, the market falls sharply (generally on high volume) and ultimately we have a great time to ad money into the markets. Not sure if this is it but it could well be.
AROUND THE GROUNDS
Looking around the grounds, we saw GOLD spike to a new high overnight trading up at $1657 while the Volatility Index was up at 24.79 against longer term average around 23 but still not at concerning levels while the Aussie Dollar pulled back following a move away from risk + RBA holding interest rates steady yesterday.
Just on interest rates, my take out from yesterdays commentary was the RBA is now less concerned with inflation, suggesting thats its a temporary issue driven higher by weather related events. As we put on the site yesterday after the release, the line ."As these effects reverse over the next couple of quarters, CPI inflation should decline" This is a central comment in my opinion and shows the RBA is likely to hold for some time yet.
The ASX 200 retested recent support yesterday and we'll break through that level today. This looks technically weak.
AUSTRALIAN STOCK PRICES OVERNIGHT
In New York, News Corp fell by US$0.73 to US$15.86, equivalent to A$14.72, A$0.32 below its last close on the ASX.
ResMed fell by US$0.85 to US$29.33, equivalent to A$2.72, the same as its last close on the ASX.
In London, Rio Tinto fell 105.5 pence to £41.76, A$1.59 lower in Australian currency terms.
BHP-Billiton fell 43.5 pence to £22.15, A$0.66 lower in Australian currency terms.
Henderson Group Plc fell 5.2 pence to £1.57, A$0.08 lower in Australian currency terms
