Oil crushed again, commodity currencies weaker, bonds rally

Quick Recap

Crude oil was crushed overnight with the front contract down more than 3.5%. It’s up a little in futures trade now but the cumulative fall is still greater than 3% for the past 24 hours. That pressure on crude is coming both from Iran saying it can put 500,000 barrels a day into the market at short notice AND continued worries about China and its economy after yesterday’s Markit manufacturing PMI was even weaker than the “flash” result a week before.

That’s knocking base metals lower as well and the combination of oil, China and base is hammering commodity currencies which we under pressure again last night.

On the data front in the US the ISM manufacturing data was weaker than expected falling to 52.7 from 53.5 last month. The Markit PMI in the US was in line with estimates at 53.8 and the Markit manufacturing PMI’s for most of Europe were either at or above expectations.

SO in the end European stocks, with the exception of the FTSE, were higher, US stocks fell and it looks like the ASX is going to take its lead from the trade and retail sales data before the RBA announcement on its monetary policy decision at 2.30 pm.

On stock I just want to highlight what I said at Business Insider this morning

In the US stock markets were lower with oil getting a fair share of the blame in most commentaries this morning. That’s certainly the case but it’s hard for traders to ignore what China’s now obvious slowdown, regardless of what the official figures say, means for the global economy. That, along with a strong US dollar is a threat to earnings. That should cap rallies or as Raoul Pal, ex-hedge fund manager and founder of Global Macro Investor, tweeted this morning traders are getting a bit worried about risk in stock markets.

No, it’s not just you Raoul.

Watch the 200 day moving average in China. That was support again yesterday.

On rates markets the deflation pulse from oil and base metals wasn’t missed. US 10’s rallied a few more points to end at 2.15%, German 10 year bunds are off 2 to 0.59% and UK rates closed at 1.89%. Domestically the 10’s are at an amazing 1.69% while the 3’s are at 1.87%.

The overnight scoreboard (9.00am AEST):

• Dow Jones -0.52% to 17,598
• Nasdaq -0.25% to 5,115
• S&P 500 -0.28% to 2,098
• London (FTSE 100) -0.11% to 6,688
• Frankfurt (DAX) +1.19% to 11,443
• Tokyo (Nikkei) -0.9% to 20,548
• Shanghai (composite) -1.11% to 3,622
• Hong Kong (Hang Seng) -0.91% to 24,411
• ASX Futures overnight (SPI September) flat at 5,612
• AUDUSD: 0.7274
• EURUSD: 1.0950
• USDJPY: 123.98
• GBPUSD: 1.5585
• USDCAD: 1.3152
• Crude: $45.42
• Gold: $1,085
• Dalian Iron Ore (September): 416.5

On the day

On the data front today we get Australian trade and retail sales for June along with the RBA decision. Currency traders will be watching closely for any hints from the RBA given recent moves. PPI is out in Europe tonight and then in teh US we get factory orders and ISM New York.

CHART OF THE DAY: Oil, almost there?

Don’t catch a falling knife is in the top 10 rules of trading. But so is respecting levels unless or until they break.

So we might be nearing a pessimistic crescendo for Oil. But I am not betting on it yet. But, while I don’t have a position I am watching closely.

That’s also in the top 10 rules of trading – PATIENCE

Yesterday I looked at the Euro and said “Interesting what I wrote Friday about the Euro in context of the price action subsequent to the data release. It reinforces the comment I made that ” Whether it’s Euro or Dollar Index (in many ways the inverse of this chart) what is clear this week is that we have had a failed break. Longer term that makes the recent low at 1.0795/1.08 as super important. A break would be decisive.”