Get ready for Volatility, this is a huge week

The Chinese Official PMI on Saturday is the start of what is going to be a huge week of data as we discussed in Saturday’s free weekly Newsletter and by the end of the week I expect that markets will have a much better feel of whether the plethora of near term support levels in a variety of markets are going to hold – I will briefly list a number of markets and levels I am watching but first lets look at the Chinese Data and the close of the week last Friday.

In China on Saturday the NBS Manufacturing PMI printed 50.8 versus 50.6 last and against expectations of a drop to 50.1. This is a good release given that Chinese data has been printing poorly over the past few weeks/month or more and the last read of the HSBC manufacturing PMI was below the 50 line. This data sets the start of the week on a positive footing and has already had a positive impact on the Aussie Dollar which closed on Saturday morning at around 0.9570 but Reuters has it as having traded up to 0.9634 but currently sitting at 0.9605.

We’ll see if this data can have any resonance today but I am struck by the lack of positive reporting of it on my usual research channels this morning – so this might be an ephemeral move which needs confirmation in today/tonight’s raft of Manufacturing PMI’s which kicks off today in Australia with the AiG performance of Manufacturing Index, Chinese HSBC Manufacturing PMI before we move into Europe and then the US tonight.

Anyway looking back to the Close on Friday and we saw stocks under pressure with US markets closing on their lows with the Dow down 1.36% or 209 points at 15,116, the S&P 500 was in our support zone at 1,631 down 23 points or 1.42% and the Nasdaq was 1.01% lower. In Europe the FTSE dropped 1.11%, the DAX was 0.61% lower and the CAC fell 1.18%. In Italy stocks were down 0.79% while in Madrid they fell 1.33%.



As you can see in the S&P 500 chart from my VantageFX MT4 platform the S&P is in the support zone I have highlighted recently and a break of 1,620 opens up a 40+ point retracement. Based on my usual trading style and system the S&P is headed lower.

The key behind the fall in US stocks and the worries that are gripping investors is that the talk of tapering in the Fed’s purchases of bonds is at odds with the data that seems to be flowing in the US economy and a lack of self sustainability in the economic recovery. Take data released Friday which showed that core personal expenditure was flat month on month and up only 1.1% year on year with the full numbers printing -0.3% and 0.7% respectively. Hard for a recovery based on consumers to continue when spending is stagnant or weak.

Remember the construction of GDP numbers requires the C+I+G+(X-M) grows each period otherwise GDP goes backwards and in that construction you can see why Q1 growth in the US was just 0.6% (2.4% annualised). Indeed over the weekend the head of the ECRI who said the US went into recession last year was on the hustings pushing his case asking the question of how spending is going to grow without income growth – it’s a very good question.

Equally though it is also a good pointer to why Australia is a bit different – for the most part Australian wages go up each year so nominal spending can continue to grow and people in general even with all the debt they carry can feel an improving ability to service their obligations. It’s making us a high cost economy but it has kept us from the depths of the GFC. Arguably though it is a big contributor to the housing price ludicrousness we have seen over the past decade as well as rising debt levels.

But when I see workers on strike in export related industries in the Hunter at the moment I think they might have been a bit too insulated from what is really going on in the world for a little bit too long. Ford is not the only business to be under pressure from a high dollar and high input costs and weak demand.

Anyway on the Australian dollar it is a bit of a messy open this morning and the 7am open of MT4 has been a bit frantic with Aussie trading a 20+ point range already. The Main thing I would say about the Aussie Dollar is that we now know there is plenty of selling in front of 97 cents and whether or not that selling remains will largely depend on the data flow for the week – the weekly close below 96 cents however was pretty weak but closing in on very important support.



Key levels are 0.9525 and then 0.94 on the bottom side with 0.94 massive support. Topside it is 0.9780 and then 0.9870 the latter of which is just a garden variety 38.2% retracement off the recent low. The dialies continue to suggest that the Aussie will find support in this 0.94-95 region for the moment.

Elsewhere in FX land the Euro has two levels to watch if either 1.3070/80 or 1.2840 give way. And USDJPY – well its almost tested support I was looking for at 99.90/100 with a low of 100.21 overnight but this zone is key. If it breaks it could get very interesting for both the USDJPY and the Nikkei.

On Commodity markets Nymex crude fell 1.75%, gold was off 1.34%, silcver fell 1.97% and copper was down 0.65%. Corn, wheat and Soybeans were up 1.18% and then 0.95% and 0.97% repectively.

Data

A heavy data load on Today which sees the release in China of non-manufacturing PMI and the HSBC manufacturing PMI, TD inflation in Australia as well as Australian Gross operating profits, retail sales, the RBA Commodity index and then it is onto Europe and the US with the Markit Manufacturing PMI’s.

Thoughts, comments, queries together with frank and fearless feedback all welcome. I’m happy to answer questions or comments on the comment stream wherever I can.

NB: Please note all references to rates above are approximate and should not be used for trade reference