Morning Report -Fed hits Aussie, stocks and Emerging Markets

Rightyo so the Fed didn't say anything contentious or unexpected and as David has written this morning over at MacroBusiness in his piece on the Jedi Fed "When the Fed tapers now is really immaterial. the possibility of it is all that matters." Which of course is dead right and what really hit markets overnight. 

The key phrase from this aspect was the one where all the members of the FOMC got on board the Taper,

"…almost all participants confirmed that they were broadly comfortable with the characterization of the contingent outlook for asset purchases that was presented in the June postmeeting press conference and in the July monetary policy testimony."

Ok so it's only "almost all" but still at 4am this morning that was the phrase that was getting the Twitterverse all, well, atwitter. Stocks didn't like it one bit with falls from the instant the Minutes hit cyberspace and no recovery in sight.

At the close the Dow was down 105 points or 0.70%, the Nasdaq fell 0.38% and the S&P 500 dropped 9 points to 1643 for a fall of 0.57%. In Europe stocks went into the minutes announcement with the expectation of a US sell off with the FTSE down 0.97%, DAX down 0.18%, the CAC fell 0.35% while stocks in Milan and Madrid slipped 0.72% and 0.48% respectively. Bonds didn't like it either with US 10's leaping to a close of 2.90% which will be worrying the Fed but what can they do about it if they are going to taper. Bunds and Gilts were also both 3 points higher closing at 1.85% and 2.71%. None of these rates are terrible per se but the trend and capital losses are huge.

Adding to the sour tone in bonds and stocks in the US was the releases of existing home sales in the US were up 6.5% month on month against expectations of a rise of just 1.5%

So the losing streak the S&P and other US markets are on continued. I saw something on Twitter this morning that said statistically the chances of a bounce are high tomorrow but realistically as you can see in the chart below and as I have noted recently the stock market retracement from recent highs is likely to head toward the very obvious trendline support which in MT4 S&P terms comes in at 1615 this morning.

 If this level breaks then we can expect a move into the 1555/65 region. My sense is that we will at least see a move down to test this support. 

On Commodity markets Dr Copper is a bit concerned fall 3 cents to a still pretty good $3.33 lb for a loss of 0.84% on the day. Gold did well all things considered for the US dollar but as a genuinely liquid store of wealth in a tumultuous world its relative strength is understandable - it sits at $1355 oz. this morning. Our friends the Ags were up to their old tricks as well with Corn up 2.84%, Soybeans 1.81% higher while wheat lagged up just 0.75%.

Global FX markets weren't immune either and when the minutes were released Euro (1.3355), Yen (USDJPY, 97.66) and GBP (1.5661) all came under selling pressure as the US dollar was favoured. While these pairs have largely recovered the Aussie (0.8977) and emerging market currencies such as the Brazilian Real remain under pressure.

As noted above the Aussie Dollar is under pressure and as you can see in the chart below it looks like this double top formation is going to turn into one of thoe rare but beautiful M formations with a full retracement back under 89 - and sometime soon.

Data

It is a decent data day over the next 24 hours with the release of Australian leading index,HSBC Manufacturing PMI before a raft of European versions of same as well as the US version and jobless claims and Kansas Fed index. Don't forget also the annual Central Banker Confab at Jackson Hole kicks off as well.