Australian dollar lower as risk goes off and stocks are sold

Quick Recap

Down, down, prices are down. That’s the bad news for the stocks and risk bulls this morning as the reverberations of the Chinese data release yesterday and the fact that the global rally has run out of puff combined to see the sellers take the upper hand again.

Weakness in stocks across Asia yesterday filtered into European trade and infected sentiment in the US. That’s hurt risk assets with the Australian, Kiwi and Canadian dollars all lower. Likewise Crude oil is off again and copper has fallen more than a cent.

Ostensibly the catalyst is the continued impact of the Chinese trade data yesterday. While the trade surplus crushed expectations of a $46.8 billion surplus with a print of $60.34 billion the concern for traders is that the import collapse continued to accelerate from -13.8% in August to -17.7% in September. That’s worried traders that the internal Chinese economic picture remains weak. On a bright note however exports are almost back into growth territory with the year on year fall slowing from 5.5% to just 1.1%.

But, with the exception of the Shanghai composite which finished just in the black yesterday all the big indexes are lower this morning. That’s left the ASX pointing lower again down 32 points with a little over an 20 minutes of trade in US markets left this morning.

The Aussie is the most obvious victim of the stalling in this risk rally and the implications of the Chinese data. It’s underperformed the Kiwi and the CAD with a big loss of 1.35% from around 7am yesterday morning. Key here of course is that it is what the technical outlook suggested as I’ve highlighted and also tweeted.

The reality though is so far all we have seen is the usual type of price action that we get at times like these. Markets need another strong catalyst to drive them higher again and get risk back on. Of course it still could be earnings season.

On commodities oil is down again with the FT reporting this morning that the International Energy Agency says the oil market glut will persist through 2016. The paper reported the IEA said:

“Oil at $50 a barrel is a powerful driver in rebalancing the global oil market,” the IEA said in its closely watched monthly report. “But a projected marked slowdown in demand growth next year and the anticipated arrival of additional Iranian barrels . . . are likely to keep the market oversupplied through 2016.”

Copper is also down, the CBOE VIX index is up and gold is testing the trendline that’s been constraining it. It’s all very interesting and fractious at the moment.

Charts are a wonderful guide for me at times likes this

The overnight scoreboard (6.42am ADST):

• Dow Jones Industrials -0.32% to 17,077
• Nasdaq Composite -0.86% to 4,795
• S&P 500 -0.67% to 2,003
• London (FTSE 100) -0.45% to 6,342
• Frankfurt (DAX) -0.86% to 10,032
• Tokyo (Nikkei) -1.11% to 18,234
• Shanghai (composite)+0.18% to 3,293
• Hong Kong (Hang Seng) -0.57% to 22,600
• ASX Futures overnight (SPI December) -32 to 5,158
• AUDUSD: 0.7261
• EURUSD: 1.1392
• USDJPY: 119.73
• GBPUSD: 1.5260
• USDCAD: 1.3012
• Nymex Crude (front contract): $46.53
• Copper (US front contract): $2.39
• Gold: $1,165
• Dalian Iron Ore (January): 378 (denominated in CNY)
• US 10 year bond rate: 2.05%
• Australian 10 year bond rate: 2.67%

On the day

On the day today the key highlight is the release of the Westpac Melbourn Institute Consumer Sentiment survey for October. Given the recent recovery in markets and change of political leadership in Asutralia some sort of bounce is expected. Then it’s China again with the CPI for September released along with Japanese corporate goods prices.

Tonight we get more inflation data in France, Spain and Italy while the UK releases employment data and the EU has industrial production data out. In the US its retail sales, producer prices and the Fed’s Beige book.

CHART OF THE DAY: Australian Dollar

All good things must come to an end apparently. So, after a near record run of daily rallies which stretched to 9 the Aussie has come back to earth with a thud. The fall of more than 1.2 cents wasn’t terribly hard to predict. Sure I took profits a little early the night before but it was because my system flashed a warning.

Yesterday’s price action, with the Aussie falling even on solid Business Survey data, was naother signal and then the Chinese data was the fundamental icing on the techincla cake.

Target now 0.7160