Horrible statistics

Today has all the hallmarks of being one of the worst trading days of the past five years; in the post GFC world, fear-selling is now stronger, faster and harder than ever before, and now there’s another pressure to it – are central banks out of tricks?

Source: Bloomberg

Emerging markets will be the epicentre of the fear selling as deflationary fears and growth-less economy fears produce GFC-like volatility with China taking the lead on that theory.

The reaction from Asia today will be symptomatic of the current investor sentiment and belief that a hard landing is inevitable (something I don’t buy as China has a plethora of leavers it can pull to slow this down) will only heighten capital outflows.

However, no major action was taken by China over the weekend which means Asia will be left largely to its own devices this morning.

The Fed is also the other risk to EMs and the risk of rising US-denoted debt leading to capital outflows, coupled with half decade low commodity prices is not a good mix. However, this is sentiment-driven and that drives fear even harder. Therefore, by the end of the week, expect to see a bounce as it will be overdone.

The current trading conditions will likely lead to a coining of new market terms ‘Hike Hysteria’ or ‘China Crumble’. Both seem very appropriate in the current conditions.

The (horrible) stats that matter

Oil is below US$40 a barrel for the first time since 2009 and logged its longest weekly losing streak in 29 years.

Dow is down over 1000 points for the week. The S&P is below 2000 points for the first time since January 30 and had its largest intraday move in over four years, down 3.2%.

Equity outflow last week was at the highest it’s been in three months – US$8.3 billion was withdrawn from global funds. US$6 billion of that was from EM funds.

Copper is below US$5000 a tonne and logged seven weekly losses in a row. One more, and it will equal the 2009 record.

Gold is on track for the best weekly gain since January and is well above US$1100 an ounce.

Bond markets had one of best weeks in the past three months.

The ASX has lost 8.95% in August (it down 9.5% since 4 August), its worst month since September 2009. It’s lost 13.7% since the April high.

CBA has lost over 23%, or $23.50, since its intraday top – three of the four banks are in bear markets.

The ASX is now trading on a trailing P/E of 15 times; it is as cheap as it was in 2012 with a dividend yield is 4.7% which is above the five-year average of 4.4%. A warning here: the knife hasn’t hit the floor yet.

SPI futures are pointing down 110 points which begs the question – will we see a four in front of the ASX soon? It is very possible.

Ahead of the open, we are calling the ASX down 118 points to 5096, however on the open of the futures markets this morning, US futures have lost a further 0.6%. This will get ugly – please fasten your seatbelts.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.