The Day So Far
The Thanksgiving holiday slumber was interrupted this morning by a big sell off in Chinese equities, the Shanghai Composite collapsing 5.48%, representing the index’s biggest single-day decline since the mid-year correction. This particular move lower was sparked by news the China’s largest brokerage, Citic, had overstated it’s OTC derivatives business by as much as $166bn, damaging the credibility of Chinese capital markets. This fed through to European markets, particularly the commodity-heavy FTSE 100, which underperformed following a note from Goldman Sachs suggesting that the recent rally in base metal prices was ‘at best temporary.’ Equities have steadily recovered since then, with EuroStoxx and the Dax in particular powering to new highs as the expectations of further stimulus from the ECB next week foremost in investors’ minds. These expectations were raised further by Spanish inflation stuck below 0% and the news that French unemployment had risen last month to a new post-financial crisis high, although this was mitigated by Eurozone economic confidence remaining at 4 year highs. The Euro has remained broadly lower versus the dollar, breaking below the 1.06 handle, while sterling has continued to slide, the batch of largely uneventful UK GDP data released this morning not enough to alter the broad theme of US dollar strength.
The Afternoon View
The final session of a very quiet week, US markets are closing early today with most US traders already enjoying their long Thanksgiving holiday weekends. Volume is expected to be light and large moves unlikely. We are looking for a short from the 2094.50 congestion zone, as the S&P is unlikely to break the 2100 handle this afternoon and we feel more confident trading the short side of the tight range we’ve been in all week. We maintain short bias in euro and crude while t notes has crept higher this week on the outbreak of geopolitical risk; we want to go with that trend for now.
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