Daily Market Reports | Jun 08 2010
By Rudi Filapek-Vandyck
Due to technical problems beyond our control, today's Overnight Report is shorter than usual.
The bears are back in control. My first story after returning from a very insightful trip to Europe yesterday said exactly that and the past 48 hours have proved how accurate that statement has been. After a late sell-off in the Monday session in US equity markets, it is very likely that continued selling is what remains on the main menu for investors.
US equities have now fallen below their lowest point for this year, including the inexplicable flash crash on May 6. To make matters worse, many a chartist will now come out and declare US equities have re-entered a new bear market phase, with the Dow Jones Industrial Average sinking through 9900 without ever noticing the criticality of that support level.
According to Bloomberg, the decline over the past two sessions in US equities marks the worst two-day performance since March 2009. Today's close also marks the lowest level in seven months.
For those investors looking for a reason as to why the unabated selling continues to dominate global equity markets, I happily refer to my Weekly Insights story from this week, sent out in the form of an email to all paying subscribers yesterday. Add a disappointing labour market update in the US on Friday, plus some concerns about consumer confidence/spending over there, and good economic news from Germany all of a sudden doesn't count for anything any more.
As one would expect, gold had another positive session (see below). Equally to be expected, US bonds rose as stock markets faltered ahead of the US government’s sale of US$70bn worth of 3-year, 10- year and 30-year bonds over the next three days. The yield on 2-year notes decreased 2bps to 0.710%, while the 10-year yield decreased 6bps to 3.144%.
Australian bond futures outperformed the US Treasuries at the short end of the curve and underperformed at the long end. The implied yield on 3-year bond futures decreased 3bps to 4.660% (price up 3bps to 95.340) and the implied yield on the 10-year bond futures fell 3bps to 5.250% (price up 3bps to 94.750).
Further contributing to the decline in US equities was a fall in Apple and Google shares, as this triggered a general decline in technology stocks. Goldman Sachs was subpoenaed in the financial crisis probe, while Bank of America was forced to repay some mortgage holders.
At the closing bell, the DJIA was down 1.2% to 9816 (as said above: below the critical 9900), the S&P 500 lost 1.4% to 1050 and the Nasdaq was 2.0% lower at 2174.
European equities fell on concerns that Europe’s debt crisis would hold back the global economic recovery, overshadowing better than estimated German factory orders data. The DJ Euro Stoxx 50 lost 0.9% to 2530, the German DAX decreased 0.6% to 5905 and the UK FTSE was 1.1% lower at 5069.
The Australian SPI 200 May 10 futures contract was down 38 points, or 0.9% to 4300.
It was a mixed night for the USD against the major currency pairs overnight. EUR/USD opens at 1.1915 after a choppy session overnight. GBP/USD strengthened to a high of 1.4563 overnight, but later pared back gains to open at 1.4465. USD/JPY opens at 91.35.
The AUD weakened against the major crosses overnight. AUD/USD opens lower at around 0.8105 after falling from its overnight high of 0.8216. AUD/EUR opens at 0.6800 after a session of range trading. AUD/JPY initially strengthened to a high of 75.65, but later fell to open weaker at 74.00 and the AUD/NZD pair opens little changed at 1.2280 after falling late in the night.
Crude oil also fell. The WTI futures contract for July 10 decreased 0.6% to US$71.20 a barrel.
Spot gold increased 1.7% to US$1,240.80.
LME copper tumbled 2.9% to US$6,101/tonne, while other base metals traded negative, with zinc, aluminium and lead decreasing 0.9%, 0.8% and 3.4%, respectively. Nickel, however, ended 1.4% higher.
US sugar, one of the few risers in the previous session, declined 1.3%. Corn fell 1.3% to a 10-month low. Wheat fell 0.8% as farmers began harvesting, supported by favourable weather. Soybeans ended unchanged, while palm oil futures were 1.0% lower.
Templeton Asset Management Ltd.’s Mark Mobius has used the opportunity to step forward and declare the global economy will avoid a “double dip” recession and falling stock prices have created buying opportunities in east European countries including Hungary.
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