The Day So Far
Equities continuing to come under pressure this morning after a very weak US session yesterday as the S&P fell 2.5% in cash terms and the Nasdaq 3.5%, hitting their lows right at the close and hinting at further downside to come. Markets now have to contend with earnings season which begins in earnest today with JP Morgan announcing Q4 results, as well as the now-habitual worries over China and crude prices. Very mixed day in the fixed income space, with the German bund and t-notes marching higher given their safe haven status, while the US high yield market shows increasing signs of stress as US high yield energy spreads continue to blow out as investors fear a wave of defaults in US shale space. The business models of the more speculative shale plays are getting severely tested by the collapse in crude, although WTI is hovering above $30 a barrel this morning.
The Bank of England interest rate announcement announced no change to the interest rates once again and an 8-1 vote split with McCafferty the sole dissenter. There were whispers that McCafferty may move over to the dovish camp, which was exacerbating sterling weakness versus the dollar with cable testing the June 2010 lows around 1.4346.
The Afternoon View
No sign of a rebound in equities thus far today and with many indices trading at key supports (FTSE 100 5800, Euro Stoxx 3000) today is a critical one for the bulls. For the S&P, 2015 support lies at 1861 and last August’s ‘Black Monday’ low of 1831 and we may need to see a test of that level before a more meaningful bounce can occur. As usual, keep your eyes on WTI crude as the $30 level has been tested twice. A break of $30 should be the catalyst for a fresh wave of selling in equities today. A close above 1900 in the S&P would force a re-appraisal of our bearish bias in the short-term. Apart from the usual Initial Jobless Claims, ECB’s Draghi and Coeure are due to speak at a Eurogroup meeting at 14:00 GMT today, as well as Fed’s Bullard (voter - hawk) and Lockhart (non-voter, neutral) speaking at 13:300 GMT and 13:40 GMT respectively.
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