The Day So Far
Equities globally reeling from a total collapse in Chinese equities, which were halted for the entire day just 30 minutes into the session after the new ‘improved’ circuit breakers were employed when the markets reached 7% down. This is the second time these circuit breakers have been reached in 2016 and we are only four trading days into the new year! The catalyst for the move lower this time was the decision by the PCOB to fix the yuan to its weakest level in five years against the dollar, a move which investors have taken as a panicked move by the central planners to curb the economic downturn. The other major concern for markets is WTI crude which finally broke below the 2009 lows of $33.17. This is a level we have long since considered to be an important barrier and from which we could see a bounce from here on profit-taking and rumours that OPEC will now surely have to act to stabilize the market. The action witnessed so far this morning is eerily reminiscent of ‘Black Monday’ last August where a limit-down session in China led to extreme selling in European and US equities. This selling appears a little irrational given that we are right at the start of the year and earning expectations in the US and Europe are predicted to recover later this year so today’s capitulation could mark a short-term bottom for equities.
The Afternoon View
That said, we have to stay with the bearish trend for this afternoon, albeit with a conservative short entry in the S&P. Initial Jobless Claims are the only notable piece of economic data so we could see the extraordinarily volatile trading conditions calm a touch ahead of tomorrow’s NonFarm Payrolls. No change for now to our bias towards the other assets, although we are monitoring crude closely to see if the 2009 lows mark a significant bottom this time. In t notes our long call has been the right one so far, aided by the market turmoil and the dovish FOMC meeting minutes last night. The US 10 year is now trading at its highest level since October.
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