March 9th, 2014
by Cliff Wachtel, FX Empire
A daily summary of global stock index price action & what caused it in Asia, Europe and the US- to help investors and traders of forex, stocks, indexes etc., get back 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
- EURUSD Outlook
- Related Special Features: These vary each week depending on what's happening. You'll find them here.
GLOBAL MARKETS IN A SINGLE IMAGE
The below is a sample of leading US, European, and Asian stock indexes' weekly charts, which provide a quick look at risk appetite world-wide for the past 4 months.
Weekly Charts Of Sample Global Indexes November 11 2012 To Present
10 Week/200 Day EMA In Red: LEFT COLUMN TOP TO BOTTOM: S&P 500, DJ 30, FTSE 100, MIDDLE: CAC 40, DJ EUR 50, DAX 30, RIGHT: HANG SENG, MSCI TAIWAN, NIKKEI 225
FOR S&P 500 AND DJ EUR 50 Weekly Chart October 2012 - Present: 10 Week EMA Dark Blue, 20 WEEK EMA Yellow, 50 WEEK EMA Red, 100 WEEK EMA Light Blue, 200 WEEK EMA Violet, DOUBLE BOLLINGER BANDS: Normal 2 Standard Deviations Green, 1 Standard Deviation Orange
KEY: 10 Week EMA Dark Blue, 20 WEEK EMA Yellow, 50 WEEK EMA Red, 100 WEEK EMA Light Blue, 200 WEEK EMA Violet, DOUBLE BOLLINGER BANDS: Normal 2 Standard Deviations Green, 1 Standard Deviation Orange
Continued upward momentum for global equities and by extension other risk assets. The last week shows risk appetite either rising or steady.
US and European indexes upward momentum remains strong, as indicated by their being in the upper "buy zone" of their double Bollinger bands.
DAILY RECAP TOP MARKET MOVERS
The following is a daily recap of top market drivers.
MONDAY: Russian Invasion of Crimea Slams Markets
Asian indexes were down hard [Japan -1.3%, Hong Kong -1.5%, China +0.9%, India -0.8%, Australia -0.33%, Korea -0.77%, Singapore -0.75%] on rising tensions in Ukraine. Adding to the negativity, China's HSBC manufacturing PMI dropped to a seven-month low of 48.5 in February from 49.5 in January, while the official mfg PMI (focused more on large state-owned firms) slipped to 50.2 from 50.5. On the brighter side, the official non-manufacturing PMI rose from 53.4 to 50.2, perhaps a sign that government attempts to rebalance China's economy are working.
European indexes fell even harder than those of Asia [UK/FTSE100 -1.49%, DAX -3.44%, CAC -2.66%, Spain -2.38%, STOXX50 -2.55%], not surprising given their greater exposure to and fallout from the Ukraine-Russia tensions and threatened military confrontation. Russian forces took control of Ukraine's Crimea region, which has an ethnic Russian majority. Ukraine continued with its own military preparations, while the United States threatened sanctions to isolate Russia economically. The Euro-zone also saw its manufacturing PMI drop from 54 in January to 53.2. Germany stayed over 50 (growth) but France remained below 50 (contraction). Per Markit.com, the overall survey is consistent with EZ industrial output growing at 1% in Q1, while GDP is set to rise 0.4-0.5%.
US stocks joined the Ukraine driven selloff, [Dow -0.95%, S&P -0.74%, Nasdaq -0.77%] to a lesser degree, and on modest volume and well off daily lows, indicating a lack of fear and belief that the situation would be resolved peacefully, given the potential economic costs to all concerned, and the unlikelihood that the West would provide meaningful military support (despite treaties committing the US and Britain to do just that as a reward for Ukraine surrendering its nuclear arsenal).
US manufacturing PMI and consumer spending were both positive, but as usual; geopolitical events outweighed the good data.
TUESDAY: Risk Appetite Rebound As Putin Halts Further Military Escalation
Asian stocks bounced on easing Ukraine crisis tensions [Japan +0.5%, Hong Kong +0.7%, China +0.2%, India +1.3%, Australia +0.26%, Korea -0.54%] and bargain hunting.
European stocks soared, regaining much the previous session's losses after Russian President Vladimir Putin ended Russian "military exercises" near the Russian-Ukraine border said he would only use force in neighboring Ukraine as a last resort (in case of what?). [UK/FTSE100 +1.72%, Germany +2.46%, France +2.45%, Spain +2.51%, STOXX50 +1.94%]. What a guy. Russian troops continued however, to surround Ukraine military bases. Putin told the press that ousted Ukrainian leader Viktor Yanukovych remains the real president, and had asked Russia to defend the lives and health of Ukrainians.
US stocks also rallied strongly [Dow +1.39%, S&P +1.52%, Nasdaq +1.75%] on easing rhetoric, more than erasing Monday's losses and bringing the S&P 500 back a new high.
WEDNESDAY: Global Markets Overall Steady On Lack of New Catalyst
Asia was overall firmly higher on delayed reaction to Tuesday's "Putin rally" in the West [Japan +1.2%, Hong Kong -0.3%, China -0.9%, India +0.3%, Australia +0.84%, Korea +0.98%, Singapore +0.38%]. China was the exception, closing lower as a first ever corporate bond default dented risk appetite, exacerbating concerns about the continued slowdown and credit market concerns reinforced by recent weakening in manufacturing data.
Europe closed mixed [UK FTSE 100 -0.71%, Germany -0.49%, France -0.11%, Spain +0.9%, Italy +1.4%, STOXX50 -0.19%], with Italy and Spain outperforming as composite PMI's of both nations beat forecasts and scored over the 50 mark that distinguishes between growth and contraction. Some analysts believed that (incorrect) hopes for new easing measures from Thursday's ECB meeting also helped a bit. EU retail sales also rose, and beat expectations.
Given the good data and short term stabilization in Crimea, we attributed the drop in many of the biggest indexes to a simple technical correction (aka short term profit taking) after Tuesday's bounce and persisting uncertainty about the Ukraine situation.
France organized a gathering of foreign ministers of Russia, the United States, Britain, and Germany in Paris on Wednesday to try to start a diplomatic process to defuse the Ukraine crisis.
US indexes were overall flat [Dow -0.19%, S&P +0.00%, Nasdaq +0.04%] as the big news items had little effect on market perceptions.
- A pair of disappointing reports on private sector job growth and service sector activity was blamed on temporary bad weather. The weakness in both reports suggested that expectations will be low for the official US BLS jobs reports on Friday. Given that markets believe the taper will continue unless things get much worse, the "bad news is good news" reaction (on hopes of a halt to the taper) didn't happen.
- The Fed's Beige Book survey indicated improved economic activity in most parts of the country, but that the weather was a hindrance.
THURSDAY: Asia Up, In West Caution Ahead of US Jobs Reports
Asia was up [Japan +1.6%, Hong Kong +0.6%, China +0.3, India +1.1%, Australia +0.04%, Korea +0.22%, Singapore +0.40]. Japan lead the way higher, fueled by news that an advisory panel to the Government Pension Investment Fund could allocate less to domestic bonds and more to stocks as the country moves out of deflation.
European shares were little changed on typical caution ahead of US jobs reports and lack of any other catalysts. The ECB's monthly rate statement and press conference was the big potential market mover, but as expected, it announced neither any changes in policy nor hints that such changes were imminent.
Meanwhile Crimea's parliament voted unanimously for the province to become a part of Russia. The people of Crimea will vote on this in a referendum on March 16. Crimea was part of Russia until 1954 and over the half the population is Russian. This edges Crimea closer to Russia, raises tensions with Ukraine and the West, but no one expects much to happen at this point beyond some sanctions, maybe. However a yes vote could undermine claims Western claims of Russian interference.
US indexes were mixed [Dow +0.40%, S&P +0.18%, Nasdaq -0.13%] but overall made slight gains, with the S&P 500 up slightly to its 50th record close since last April, after weekly new jobless claims hit a three-month low, a bullish sign ahead of Friday's monthly non-farm payrolls report.
FRIDAY: Fears Of Escalating East-West Confrontation In Crimea Override Upbeat US Jobs Report
Asian indexes closed mixed [Japan +0.9%, Hong Kong flat, China -0.1%, India +1.9%, Australia +0.32, Korea -0.05%, Singapore +0.23%], on the usual caution ahead of US jobs reports. They were lead once again by Japan as a combination of better-than-expected U.S. jobless claims and a weak Yen lifted the Nikkei.
European indexes fell hard[UK/FTSE 100 -1.24%, Germany -2.01%, France -1.15%, Spain -1.33%, STOXX50 -1.49%] on signs of escalating tensions over Crimea:
- Crimea's legislators voted Thursday to secede from Ukraine and join Russia
- Reports Friday of a Ukrainian military base in Crimea under siege by Russians, and reports of confrontations between Ukrainian and Russian troops
- A US warship entered the Black Sea
- U.S. President Barack Obama ordered visa bans and asset freezes for unidentified persons who were deemed responsible for threatening Ukraine's sovereignty.
US Stocks finished mostly lower[Dow +0.18%, S&P +0.05%, Nasdaq -0.37%], as investors took profits after early gains sparked by the better than expected nonfarm payrolls report, on uncertainty about Crimea and signs of rising tensions cited above.
Markets closed mostly higher on a combination of:
- Overall good news from top tier calendar event data (Europe healing, US job reports)
- The assumption that the Crimea situation will be resolved with neither war nor long term economic damage. This was the biggest factor, however next week's likely vote in Crimea to secede from Ukraine and re-join Russia begs for a Western response and uncertainty over Russia's likely response.
To be added to Cliff's email distribution list, just click here, and leave your name, email address, and request to be on the mailing list for alerts of future posts.
DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING OR INVESTING DECISIONS LIES SOLELY WITH THE READER.