Global slide gathers momentum

The global slide continues – small cap equities saw sustained downward pressure and the trend is starting to spread to the large cap space as well.

Source: Bloomberg

There wasn’t a whole lot of emphasis put on price action overnight, which I find interesting considering the momentum that is building in the US. The DOW hit the low of the day on the close, as did the S&P, and saw relatively benign trading as the bears started to take full control.

I continue to keep a sharp eye on the S&P futures. It’s the fourth day in a row where trading has been in the red, having fallen 2.3% overall. The market is looking for the magical 5% pullback to signal the start of the proper slide in the large cap space.

I also found overnight trading in copper interesting. The news out of China yesterday was mixed: the flash PMI figures showed new orders and exports increased at a faster rate, but employment also decreased more quickly. Commodities and equities rallied strongly on the PMI figures, from which we can draw two conclusions:

  1. Manufacturing is still expanding in China and demand will return in the near term
  2. The slide in employment is going to push the central government into the market with some form of stimulus package once more

Copper trading was interesting because it actually fell with both LME and CME. Copper is now heading back to yearly lows. To me, that spells trouble for yesterday’s trading theories and trade action, for two reasons:

  1. The flash figure was just that a flash read and the blurred story meant it was easy to cherry pick
  2. China’s Finance minister Lou Jiwei making it clear on Monday at the G20 finance meeting that stimulus from the central government is now out of the question

As the clearest measure of future industrial production, the copper slide is a telling reminder that short-term volatility and downward pressure is likely over the coming months. Investors are starting to believe the PBoC and central government want structural change to take effect.

Ahead of the Australian open

The price action from yesterday illustrates that the sell-off is well and truly underway in the ASX. The bounce on the China data was hollow, and volume and value through the ASX yesterday was below the 30-day average. The recovery looked more like the bulls were trying to resist the pressure, rather than bears seeing the end of the slide.

Iron ore (IO) will again take centre stage today. The IO futures in China fell slightly yesterday, ignoring the flash data as rebar fell 1.2% - this shows steel demand is still not recovering. At $79.40 a tonne, we have now see Arrium and Mount Gibson (on UBS estimates) under water versus costs. BC Iron has 40 cents to play with if it is producing at 62% concentrate and not 58% or lower. The key risk for materials is if the biggest scalp in the pure IO space, FMG, goes under water. Costs are estimated at US$77 a tonne, giving it $2.10 to play with.

We’re currently calling the ASX 200 down 37 points to 5378 as the market looks to give back most of yesterday’s gains on the open. Once again, the banks will be the place to watch, considering the bounce in the index was mainly down to their recovery. The volatility here is unlikely to slow any time soon as speculation around the Fed funds rate plays havoc with the yield trade – all eyes will be back on Washington come the October Fed meeting.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material 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 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. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

Een artikel zoeken

Form has failed to submit. Please contact IG directly.

  • Ik wens per e-mail informatie van IG Group bedrijven te ontvangen over handelsideeën en IG's producten en diensten.

Voor meer informatie over hoe wij uw gegevens mogelijk kunnen gebruiken, bekijkt u ons Privacy- en toegangsbeleid en onze privacy website.

CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 79% van de retailbeleggers lijdt verlies op de handel in CFD’s met deze aanbieder.
Het is belangrijk dat u goed begrijpt hoe CFD's werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.