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Anyone who hoped that last week had seen the end of the avalanche of selling has been bitterly disappointed. This morning’s excursion into positive territory for the FTSE 100 was even briefer than Friday’s, and US markets have really fallen out of bed, with the Dow incurring a 200 point loss in the opening half an hour. It is definitely not time to take off your tin hats just yet. In fact, it might be wise to hunker down still further; the big question for many now is whether to ride out the storm or get out with what little remains. How investors play this in the coming days will be crucial to market direction.
6000 – we hardly knew ye. It seems only yesterday that we were eagerly watching and waiting in December for the FTSE 100 to break above this level from below and now we sit awaiting any move below it. The rout in mining stocks can be safely pinned on China and its reluctance to ease credit conditions there, but it seems shareholders in Kazakhmys are not happy about the copper miner’s support for national peer ENRC. Who can blame them, when it seems Eurasian Natural Resources is being off the market below its actual value. Still, valuing miners is a tricky task, and many will breathe a sigh of relief that this troubled company will no longer have to wash its dirty linen in public.
The problem with drawing lines in the sand is that they tend to get kicked in your face. Friday saw the loss of 1585 on the S&P 500, and 1570 didn’t last long today. Only weeks ago it was the pessimists that were asking, ‘where does it end?’, but now that anguished cry can be heard from fund managers around the world. In the face of such selling, the Chicago and Dallas Fed indices are like the grass that withers, being ignored in the current undignified rush for the exit. Thank goodness there are seven major Fed speeches this week – if it’s one thing this market needs at the moment, it’s more commentary from a central bank that may well have begun to tighten prematurely.
The reaction in commodities to the news from China was never going to be pretty. The world’s second-largest economy was perhaps the last prop remaining to commodity bulls, but even this now seems lost to them as copper drops through $3 per pound. The trend that has lasted since the beginning of 2011 looks to be getting even uglier, which does not bode well for mining stocks in the months to come.
In forex the moves have been positively somnolent when compared with the sell-off in equity markets. Nonetheless, notwithstanding Jon Hilsenrath’s late-Friday attempt to talk down the US dollar, the theme for the immediate future remains a strong dollar and higher Treasury yields. The EUR/USD has managed to hold its ground versus the dollar after the expectations index of the German IFO reading came in slightly higher than expected.