Global Markets Weekly 2 Minute Drill: Daily Recap & Top Market Movers

A daily summary of global market price action & what caused it- to help investors and traders of forex, stocks, indexes etc. get into context for the week ahead in global financial markets

The following is a partial summary of the conclusions from the fxempire.com  weekly analysts’ meeting in which we share thoughts about what’s driving major global asset markets. The focus is on global stock indexes as these are the best barometer of overall risk appetite and what drives it, and thus of what’s moving forex, commodities, and bond markets.

It’s a quick summary of last week’s international stock market action and what drove it. It’s our starting point for our follow up articles on:

• Lessons For The Coming Week And Beyond
• Coming Week Top Market Movers
• Related Special Features

MONDAY

Asia

Asian indexes continued where they (as well as the Europe and the US) left off Friday, falling hard [Japan -2.5%, Hong Kong -2.1%, China -1%, India -2%] on continued concerns about:

• A harder than expected China slowdown after the poor PMI data last Thursday
• Fears of higher US interest rates from Fed tapering that could force EM interest rates higher, and thus growth (and their financial markets) lower.

Ironically, unlike other Asian stock indexes, Japan’s Nikkei suffered from its currency’s strength, not weakness, as the JPY’s safe-haven status has driven it higher. That strength is bearish for Japan’s export-oriented stocks. The index was also pressured by news that Japan’s trade deficit had nearly doubled and hit a new record, due to a weakened Yen and rising energy imports.

The selloff in Asia came despite newa of a deal to prevent a precedent setting default of a major Chinese trust suggests that markets anticipated a bailout.

Europe

As in Asia, European indexes closed solidly lower due to continued risk-trade unwind stemming from concerns over China and emerging markets. It was their biggest single day drop in 7 months and it took them to a one month low, wiping out 2014’s gains, and overshadowing the bullish strong German Ifo business sentiment index result.

US

US indexes finished lower, though a bit less so than those of Asia and Europe, with the continued unwind of long risk positions/short safe haven asset positions for the same reasons as overseas. US stocks opened higher after infrastructure bellwether Caterpillar (CAT) earnings beat estimates, but new homes sales printed below estimates. Momentum really turned when the largest S&P 500 sector, technology moved lower and ultimately sent sentiment bearish for the day. As in Europe, prevailing negative sentiment from last week outweighed some positive data like rising Dallas Fed mfg activity and US flash PMI beating forecasts.

Overall, the lesser decline in US stocks and only minor move higher for the safe-haven USD suggested that the fear was abating. Once again, this advanced signal from the currency markets proved correct, as most major indexes registered little if any further declines.

Gold also fell on Monday. Remember, it’s a currency hedge and NOT a safe haven asset. Thus its pullback Monday also suggests that currency fears in the EMs were easing for the moment. Gold had just finished its fifth straight week of advances.

TUESDAY

Asia

Asian indexes closed mixed, essentially flat, with minor moves up or down as the fear traded abated. The subdued moves were mostly due to a combination of caution ahead of the coming announcement on the Fed’s taper plans Thursday, and iPhone suppliers for Apple Inc. moving lower on disappointing iPhone sales and revenue forecasts. Meanwhile Samsung set a new smartphone sales record, widening its lead over Apple.

Europe

European indexes closed modestly to solidly higher (FTSE 100 +0.32%, DAX +0.62%, CAC +0.98%, IBEX and MADRID +1.24%) on renewed optimism about growth for Spain, upbeat news from some industrial companies, and signs of stabilization in emerging market assets. Spain outperformed all after Economy Minister Luis de Guindos revised GDP forecasts higher for 2014.   Sentiment got an additional boost from:

German Gfk consumer confidence index beating forecasts

An expected Turkish central bank rate hike later in the day after European markets closed, as was indeed the case. The Turkish central bank hiked its overnight lending rate to 12% from 7.75% and the overnight borrowing rate to 8% from 3.5%, hoping the strong move would succeed halt the slide in the Turkish Lira, which jumped 3% after the announcement but then ceded its gains as markets realized the move wasn’t as big as it first appeared, and that it might be a one-time action rather than the start of a sustained series of rate increases.

US

US indexes again followed Europe’s lead, but with a much stronger bounce (Dow +0.57%, S&P +0.61%, Nasdaq +0.35%), as the EM selloff appeared over, allowing markets to focus earnings forecast beats from firms including big names D.R. Horton (DHI) and Pfizer (PFE). Markets shrugged off the disappointing durable goods orders report, suggesting that investors were in a mood to buy on any excuse now that emerging markets were calming and China had dodged a potentially systemic risk level default.

Markets seemed to shrug off the imminent prospects of another $10 bln cut in QE, as unofficial Fed mouthpiece Jon Hilsenrath had already written that would happen, as investors agreed that the Fed would not change course due to short term setbacks like the last US jobs report or the recent EM selloff.

WEDNESDAY

Asia

Asian markets closed strongly higher overall (Japan +2.7%, Hong Kong +0.8%, China +0.6%, India -0.2%), following up on the US gains as markets here too were ready to bounce on any excuse. It got that from the news of the Turkish rate hike.

Europe

European indexes were almost all down between about 0.5% and 1%, (with Spain outperforming, rising a very modest 0.11%) on EM, Fed taper concerns. Enthusiasm for Turkey’s devaluation, which had Asia up and Europe strong at the open, faded as the European session wore on as markets realized the hike wasn’t as high as it appeared, and many suspected this was not the start of a sustained series of rate increases to support the Lira.

Recent weak earnings reports and reasonable caution ahead of the FOMC announcement on taper plans didn’t help. Some feared the expected additional $10 bln cut in stimulus could shake fragile EM markets yet again.

The drop left European shares at six-week low, breaking below technical support levels.

US

All three major US indexes fell over 1% on the supposedly expected additional $10 bln cut in QE that the FOMC announced Wednesday. The fading enthusiasm in Europe over Turkey’s rate hike as insufficient, as well as earnings misses by sector leaders AT&T (T) and Boeing (BA) didn’t help.

Not surprisingly, the USD found little support from the taper, as once again, currency investors appear to anticipate better than those in stocks. The USD’s range bound moves in prior days was a signal that forex markets did not expect any departure in Fed policy of cutting $10 bln from monthly bond purchases.

THURSDAY

Asia

Asian indexes mostly followed US stocks’ reaction to the FOMC’s latest taper and also fell hard (Japan -2.5%, Hong Kong -0.5%, China -0.8%, India -0.7%, Singapore-0.68%). Chinese HSBC PMI data confirmed the contraction in China manufacturing, adding to the gloom in Asia/ Per HSBC, the weakness was “…partly due to weaker new export orders and slower domestic business activities.” Shall we assume the rest of it was due to tighter credit?

Asian trading was thinned by the closure of some Asian markets for the start of the Lunar New Year holidays. South Korea and Taiwan were shut and mainland China would be closed for several days starting Friday.

Europe

European indexes made a modest ‘technical bounce’ as near term support held and brought out a few bargain hunters due technical indicators suggesting ‘oversold conditions.’ Translation: shares slightly up, no clear reason.

US

In contrast, US shares rose strongly (Dow +0.69%, S&P +1.12%, Nasdaq +1.81%) aided by a combination of ongoing flow of cash out of EMs and into US equities, and some strong US earnings reports from Facebook (FB), Twitter (TWTR), as well as buying in AMZN, QCOM, and GOOG ahead of their earnings reports . There was also a 3.2% advanced Q4 2013 GDP print, which was at best only in-line with forecasts, and sharply lower than the Q3 4.1% gain,  but in contrast to most markets it looked great. Personal consumption growth increased to 3.3% annualized in Q4 from 2.0% in Q3, but even that was below the forecasted 3.7% gain.

Although GDP growth slowed in Q4, anything above 3% growth still supports the broader recovery theme.  This still solid growth is a key reason why stocks can still rise even as the Fed tapers. Forward guidance appears to be working thus far, because the increase in 10-year yields has been minimal, and is down from a month ago. That means that the real threat of the taper – higher rates – has been avoided and so the world remains safe for risk assets, at least those in the US.

As in Europe, there was an element of bargain hunting as buyers shrugged off some bad data (pending home sales fell 8.7%) and earnings misses, and focusing on the (relatively) positive.

FRIDAY

Asia

Trading was thinned again as China, Hong Kong, Indonesia, and Singapore were all shut for the Chinese New Year. Results were mixed for the major indexes open, Japan -0.6% (down on JPY strength), India +0.1%, Australia +0.11%.

Europe

European indexes were lower overall (UK’S FTSE 100 -0.43%, Germany -0.71%, France -0.34%, Spain -0.39% STOXX 50 -0.25%), closing out their first losing month since August due to a combination of concerns about deflation, as well as the effects of emerging markets’ effects on earnings.

US

US indexes down solidly (Dow -0.94%, S&P -0.65%, NASDAQ -0.46%) for the same reasons as their European counterparts, and like also close out their first down month since August

Conclusion

Most developed world indexes closed out their first month down since August, and their uptrends that began in the summer of 2013 are now in danger.