Volatility returns as stocks slip on trade worries, eyes on ISM today
Volatility is a double-edged sword for the trader and, for
better or worse, it’s back. The confident march of the bulls into the year-end
has come unstuck. With the S&P 500 up 23% and Europe, ex-UK, up about 15%
this year there is still room for investors to be booking profits into Christmas
that could spell further downside pressure. Last year it was the Fed to blame,
today it’s Trump and trade. Things may get a
little dicey as we run towards the Dec 15th deadline for the planned
tariff hike on $156bn in Chinese goods by the US.
Stocks continue to feel the heat from Donald Trump’s
salvoes tariffs and the mounting risk that the US-China trade war will continue
festering like an open sore well into 2020. China
today is saying that it will take necessary countermeasures to defend its
interests, refused to set a timeline for a deal and stressed that a trade deal
needs to be on the basis of ‘equality and mutual respect’ – not the one-sided
deal that Trump is demanding. Nothing in these comments is especially new.
Wall Street had a tough session with the VIX
suddenly emerging from its slumber to try a squeeze on 18. The Dow ended
down 1% to 27,502 and the S&P 500 dropped two-thirds of one percent to
3,093. But having opened sharply lower bulls took a grip and steadied the ship
and we closed at the highs of the day. US large caps should at least benefit
from a flight to quality in all this mess.
Asia has been broadly softer overnight with Sydney and Hong
Kong moving down well over 1%. European markets are
flattish ahead of the open – FTSE 100 a tad weaker, the DAX a
- Markets are
discounting a trade deal with China being done this year, but it’s still not
impossible. The caprice of Trump means, as we have consistently stressed,
anything can happen.
- An EU-US tit-for-tat
trade war is a risk but not to be overplayed yet – most think it can be
- Global equities have
had a good run this year – there is still plenty of profit taking that could
occur in the run-up to Christmas- do we see a repeat of last year and the
‘nightmare on Wall Street before Christmas’?
- The market, and
Trump, ultimately know the Fed has their back. Pullbacks are to be expected as
the market drifts higher and higher
- After the soft
manufacturing PMI on Monday, eyes on today’s ISM non-manufacturing PMI for a
health-check of the US economy – could be important as – at present – the
market does not seem overly stressed by worries about the US economy after the
yield curve inverted and then uncoiled again – have markets been
prematurely ecstatic? Usually after inversion you see a sharp steepening before
the recession strikes.
The bid for havens has seen the yen move sharply against
the dollar. USDJPY has moved one big figure on the ratcheting up of
trade pressures to trade around 108.50, having begun Monday at 109.70 and with
bulls confidently eyeing 110. Now we are looking at
support emerging from the 50-day moving average at 108.470. A possible golden
cross needs to be watched.
Elsewhere in FX, GBPUSD dutifully pulled back from
the highs after touching on 1.30 and trying to make to reach its highest since
May. As of send time the pair was hovering around 1.2990 – if it taps on the
door enough it should open. A lot depends on the confidence the market has in
the polls which shout loud and clear that a Tory majority government is coming.
Services PMI on tap at 09:30 GMT is of secondary importance but could produce some
EURUSD has done little since moving up to 1.1070. AUDUSD is
holding the 68 handle for now.
Gold has also found bid with yields coming down – US
10s back under 1.7% point to the pressure in equities. Gold rallied to $1482
and a look at the 50-day moving average at $1483 which may offer some
Elsewhere, oil is holding in the upwards channel
trend with support at $56 holding as we run into the OPEC meeting. Talk of OPEC
and allies increasing their curbs – that is, deepening cuts from 1.2m bpd to
1.5m bpd may be overconfidence, but bulls will be hopeful.