Market was on tenterhooks in the morning waiting for ECB President Mario Draghi to deliver on his ‘believe me” speech of last week. It had high hopes and was placed for perfection. Before ECB’s press conference, European stocks were higher on an average by +0.5% and North American futures by +0.3%.
Then Super Mario delivered but it was ‘you should not have believed me’ variety. To say that the markets were disappointed would be the understatement of the quarter if not the year. Markets around the world fell promptly even while President Draghi he was speaking.
In the aftermath of the non-announcement, Spanish 10-year yields were sharply up by 43 bps to 7.16% from a low of 6.60% and Italian yields were up by 58 bps to 6.33% from 5.75%. As FT/Alphaville notes, it was the worst sell-off in Spanish 10-year bonds since records began in 1993. Now the whole purpose, lest someone forgets, of all this humbug was to keep the yields of these troubled nations low there by giving a respite to their respective governments. That objective went down the drain.
The carnage was of similar magnitude in equities. DAX saw an intra-day drop of -3.6%, FTSE -1.8%, CAC-40 -4.2%, Spain’s IBEX by -7.2%, Italy’s FTSE MIB -7.4%. None of them recovered much and closed quite near the lows for the day.
US market was also not un-touched. eMini saw an intraday swing of -2.4%. However, unlike European markets, they recovered and many major indices closed in the upper half of the day’s range – except NASDAQ. The price action of $VIX was puzzling. It declined by -7.3% after spiking up at the open.
North American futures were cruising pre-ECB conference but during the event – around 8:30 AM EDT – they dropped like a rock. S&P future fell from a high of +11 to a low of -12 within minutes. Futures continued their descent till 12:30 PM EDT with a minor bounce from 9:00 AM to 10:00 AM. In the afternoon, futures stabilized and have been trending up. From rose up into New York close and then consolidated at that level till 6:00 AM GMT (2:00 EDT), before resuming an uptrend into European mid-morning.
Around 10:00 AM GMT (6:00 AM EDT), ES was up by +8.50, YM by +64 and NQ by +18.5. Now the anticipation is for a positive non-farm payroll numbers to remove the bad tastes due to two-central bank disappoint in a row (three if you count BOE).
Debunking the decoupling theory, Asian stocks continue to suffer in the reverberations of European crisis. Most tumbled on the last day of trading for the week. Weak earning from bellwether like Sharp and Sony did not help. Nikkei was down by -1.13%, Kospi by -1.1%, Hang Seng by -0.12%, Taiex by -0.69%, S&P/ASX 200 by -1.12% and Sensex by -0.2%.
Shanghai Composite is still dancing to its own tune. It was up by +1.02% due to some good news. Authorities reduced stock trading fess and the central bank commented that it will make stabilizing the economic growth a bigger priority. This fueled the hopes for stimulus. Chinese service sector also expanded in July. HSCB services PMI increased to 53.1 in July form a 10-month low of 52.3 in June. On the other hand, the official PMS for services sector fell to 55.6 from 56.7.
India’s service sector expanded for the ninth straight month in July. HSBC PMI came in at 54.2 in July, which is a drop from June’s reading of 54.3. The survey also shows that business optimism is decreasing due to governments; inability to implement policy reforms.
In the early European session, the stocks are up awaiting US payroll numbers. Despite Thursday’s debacle, most European indices are headed for a positive week. DAX is up by +1.69%, FTSE 100 by +1.15%, CAC-40 by +1.93%, IBEX by +2.1% and FTSE MIB by +3.3%.
DAX has recovered half of the loss incurred yesterday. It is trending up within an upward sloping channel. It has retraced more than two-thirds of the March-to-June decline. It is at the upper limit line. If it closes below the lower limit line – around 6500 – then the current pattern become a bearish flag.
US 30-year Treasury bonds had a positive day but the price action does not give a clear cut direction. Today morning it is down by 22 bps. Yesterday’s gain was about 24. Central Banks’ action/inaction and general economic reports are confounding the bond market too. 30-yr Treasury are trading in the middle of a horizontal trading range.
ECB conference shook-up commodity markets too. NYMEX crude fell by -2.0% and is trying to find a support at the low of 86.84 made on July 25. So far on Friday, it has regained +1.2%. NatGas had one of the worst days in over a month. It fell by -7.9%. It made a first lower low since mid-June. The next support level is at 2.75, the July low.
Gold is back bang in the middle of an emerging symmetrical triangle with one failed attempt to break out of it to the upside. It was down by -1.0% on Thursday. Silver was down by -2.0% and copper by -2.5%. Dr. Copper is in danger of falling below an emerging symmetrical triangle. If this happens then it will be bad for global markets.
Dollar basket tried to mount a reversal on Thursday but so far it is inconclusive. Yesterday it closed up from an intra-day low of 82.23 reaching an intra-day high of 83.61. Friday morning the dollar is again under pressure increasing the chance of a test of yesterday’s low.
EUR/USD was the hapless victim of Super Mario’s non-deliverance. It saw an intraday swing down of 267 PIPs reaching a low of 1.234 from a high of 1.24065. Today it has come back to 1.2278. The emerging inverse Head-&-shoulder pattern is still going on. A close above the neck line of 1.2400 may take the pair above 1.2600.
Resource currencies – Aussie, Kiwi and Loonie – are continuing their short term trend after Thursday’s hiccups. GBP/USD is still in the middle of the emerging symmetrical triangle. CHF is making a pattern similar to EUR/USD but in opposite direction and of shorter duration. USD/JPY is consolidating at the lower end of its recent move down and AUD/JPY is still knocking at the upper limit of a horizontal channel indicating that risk-on trade has gone away yet.
Key Levels For The Day:
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