Global Markets: Two-Minute Drill Review of Last Week

Global Markets Weekly 2 Minute Drill: Daily Recap and Market Movers: Calming Despite Data

by Cliff Wachtel, FX Empire

Most Global Stock Indexes, Risk Assets & Currencies, Bounce, Stabilize, On Optimism, Despite Poor China, US Data, ECB Inaction

Here’s 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, bond markets, etc.

It’s a quick summary of last week’s international stock market action and what drove it. It’s our starting point for our more in-depth articles on:

• Lessons For The Coming Week And Beyond: State Of The Markets-Dip Or Deeper Pullback?, Lessons And Ramifications From The US and the Jobs Reports, EU, Japan & China Markets, EM Markets, Gold, etc.
• Coming Week Top Market Movers
• EURUSD Outlook
• Related Special Features:

Why You Really Should Take 2 Minutes To Skim This

This quick summary of last week’s action is, kind of like when a TV series starts with, “last week on___”. It gets you back into context, and thus better prepared to:

• understand the articles on lessons for the coming week
• the likely key drivers
• interpret what actually happens this week
• compare and contrast the week’s developments and note what key themes and drivers are the same or different, and note the lessons implied.

We’ve found this kind of post to be a huge time and energy saver to ease the transition back into the market week, especially for those of us who really try for some healthful R&R on the weekend and forget the prior week.

This article gets your head quickly refocused so that you can forget markets without fear of getting rusty. Many report that these are useful to archive and have handy as a quick reference for what happened and when, so when reviewing longer term charts you know what was driving price action during a given day or week.

So here’s the daily play-by-play in a nutshell for February 3-7, 2014.

Global Market Snapshot: One Image Says It All

The key take-away from the sample of leading global stock indexes shown below, which we use as global risk barometers for reasons covered here, is that the breakdown in the over 18 month up trend on the weekly charts halted this past week, but it did not reverse. We have calm, a temporary bottoming, but not a rebound. Not yet.

The red line is the 10 week or 200 day (exponential) moving average. While we would never advocate using just one technical indicator, there are many who will only go long an asset when its price is above this line, and will only short if price is below this line. So it is a rough barometer that is telling us the bull market is at least taking a break in most of the markets shown below, with some (China, Taiwan) having already suffered much more technical damage than others.

WEEKLY CHARTS OF LARGE CAP GLOBAL INDEXES WITH 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
Source: MetaQuotes Software Corp, www.fxempire.com, www.thesensibleguidetoforex.com

S & P 500 DAILY CHART – A REPRESENTATIVE SAMPLE OF DAILY MARKET ACTION
Source: MetaQuotes Software Corp, www.fxempire.com, www.thesensibleguidetoforex.com

Here’s what drove that stabilizing and daily price action last week.

MONDAY: All Down Hard On Weak China, US Manufacturing Data, EMs, US Jobs Worries

Asia

The leading Asian indexes that weren’t shut for Chinese New Year closed sharply lower [Japan -2%, Hong Kong, China closed. India -1.5% Australia -0.06% Korea -1.09%] due to a combination of:

• Continued nervousness about the EMs
• Weaker than expected China manufacturing (mfg) PMI reported over the weekend
• The usual caution ahead of the US monthly jobs reports Friday and reports that hint at their result that come out earlier like US non-mfg PMIs and the ADP NFP report.

China’s services PMI was ok, but unlike the US, China is a manufacturing based economy so the mfg PMI is the more important indicator of China’s economic health, and it fed the continued slowdown theme.

Europe

European indexes also plunged [UK FTSE 100 -0.69% Germany -1.29% France -1.39% Spain 2.02% STOXX 50 -1.52%] for the same reasons cited above for Asia

US

The big 3 US indexes fell hardest of all Monday [Dow -2.06%, S&P -2.27%, Nasdaq -2.61%], because in addition to the above negative sentiment drivers, the January ISM manufacturing index surprisingly plunged to an eight-month low, prompting the deepest single day selloff since June.

TUESDAY: Bearish Market Drivers From Monday Hit Asia But Lose Strength Elsewhere

Asia

Asian indexes continued to fall hard [Japan -4.2%, Hong Kong -2.9% (open) China closed, India flat, Korea -1.72%, Australia -1.69%] on the same concerns that hit US markets Monday. Japanese stocks had the added burden of a stronger JPY.

Europe

European indexes were down but slowed their descent [UK’s FTSE 100 -0.25%, Germany -0.64%, France +0.24%, Spain,+0.3% STOXX 50 -0.34%], as the concerns weighing on Asia were already more priced in, though weak earnings from chip designer ARM and telecom KPN didn’t help.

US

US indexes, however, actually had strong bounce [Dow +0.45%, S&P +0.76%, Nasdaq +0.86%], though given the lack of specific news it seems to be just a technical bounce at support on a combination of bargain hunting or closings of short positions (which require buying back the shorted instruments and so boost demand).

The rally in EM currencies provided some support Tuesday

The MSCI Emerging Market Index rallied 2.0% Tuesday- the biggest gain since December 6, and the optimism was confirmed by the spike in volume for the index.The majority of the liquid emerging market currencies rallied, with leaders including the South African Rand, Mexican Peso and Brazilian Real all posting over 1 percent gains versus the US dollar.

Still the rally in stocks and EM currencies made only a minor dent in recent losses, and so as the week progressed, proved to be a mere minor counter-move until Friday’s US jobs reports came out. [UPDATE THIS SAT NIGHT]

WEDNESDAY: Asia Gets Bargain Hunter Bounce, Western Markets Flat

Asia

Asian indexes were mixed but overall higher as they followed the US’s dead cat bounce with one of its own, [Japan +1.2%, Hong Kong -0.6%, China closed. India +0.2], driven by a combination of bargain hunting and an encouraging strong earnings reports from Toyota, Panasonic, Sony, and Hitachi

Europe

European indexes closed mixed, essentially flat[FTSE 100/UK +0.13% Germany -0.13% France+0.01% Spain +0.21% STOXX50 +0.05%] as the upbeat performance earlier in the day in Asia was balanced by caution ahead of some key US jobs reports, ISM non-mfg PMI and the ADP NFP change, that can be market moving because they hint at the actual, official BLS results Friday. Oh yes, and no one believes the EM currency angst is over.

US

Stocks finished with small losses [Dow -0.01%, S&P -0.20%, Nasdaq -0.50%] after a choppy session, recovering most of their early weakness after the ISM services sector survey beat forecasts but the ADP private-sector jobs report was below expectations.

THURSDAY: Markets Rebound On Bargain Hunting, Optimism On US Jobs Reports

Asia

Asian indexes were mixed, mostly up on typical caution ahead of the Friday US monthly jobs report and lack of any clear bullish catalyst.[Japan -0.2%, Hong Kong +0.7%, China closed. India +0.25%, Australia +1.15%, Korea +0.88%]

Europe

European indexes continued to rebound on solid earnings news [FTSE/UK +1.55% Germany +1.54% France +1.71% Spain +1.94% STOXX50 1.34%] despite the ECB’s disappointing some with hopes of additional stimulus

US

US stocks had a strong oversold bounce [Dow +1.21%, S&P +1.24%, Nasdaq +1.11%] despite customary caution ahead of the US jobs reports, , as a drop in applications for jobless benefits appeared to signal an improving U.S. labor market and economy, sparking optimism about the coming jobs report.

However, winter weather continues to distort the data, as some labor department offices like those in Kansas were closed for ice storms and could only offer estimates.

FRIDAY: Global Rally Continues Despite Weak Jobs Report

Asia

Asian indexes [Japan +2.2%, Hong Kong +1%, China +0.6%, India +0.3%, Australia +0.72%, Korea +0.77%] closed strongly higher on what proved to be misplaced optimism about the coming US jobs reports.

Europe

Despite the disappointing US jobs reports, European indexes closed solidly higher [UK/FTSE 100 +0.20%, Germany +0.49%, France +0.96%, Spain 1.08% STOXX50 +0.72%] on a combination of better than expected mining stocks’ performance and ongoing optimism about the EU recovery

US

The big 3 US indexes had their second strong rally [Dow +1.03%, S&P +1.32%, Nasdaq +1.69%], and like their European counterparts, shrugged off the weaker than expected jobs report as bad but not at all disastrous. For details on the reasons for that behavior and the real meaning of the jobs report, see our report on lessons for the coming week here.

The rallies of Thursday and Friday pushed all three leading indexes into net gains for the week; however small caps have not done as well, as the Russell 2000 closed 1.3% down on the week.

Be Prepared For The Coming Market Week

The above is a quick summary of last week’s action just to get you into context for the coming week. For a more complete understanding of what drove markets and what’s likely to drive them (and how) in the coming week and beyond, as well as special reports on key issues you need to know, see our coming posts (within the next ~4-24 hours) here.

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DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING OR INVESTING DECISIONS LIES SOLELY WITH THE READER.