Intraday Market Thoughts

Stocks Stopped Dead by Draghi

by Adam Button
Dec 3, 2015 23:50

Suddenly, the equities market outlook has darkened considerably. We break down the reasons after a sensational day in markets where EUR/USD gained the most in six years.  Aussie retail sales are up next.

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Stocks Stopped Dead by Draghi - Usdx Weekly Dec 3 (Chart 1)

We noted that there was a bearish outside day in the S&P 500 yesterday and the selling accelerated today after the ECB disappointed. The index posted its worst day in 9 weeks with a 30 point fall to 2049. Technically, it broke the 200-day moving average and it's left with little support until the November low at 2016.

The index is once again negative for the year and that may grow in importance as we near year-end. 2057 was the opening level for the year and it closed at 2049 today.The ECB missing expectations may be a sign that the easy money taps are closing. The Fed is leaning towards a hike this month and late this year the BOJ signalled that it will wait and see. Those will eventually prove to be mistakes but for now it may be an important watershed. Today's 3.6% plunge in  the Dax (400 pts) as well as the selloff in all major indices is a validation the "052008 Parallel", a rare multi-year technical occurence highlighted by Ashraf in the Premium Insights, under which FTSE and DAX trades are currently in the money.

Cheap money has been the driving force in equity markets for the past 6 years. Thursday may have been a taste of the future. The US stock market decline was far eclipsed by the more than 3% declines in European stocks.

That was coupled with a massive selloff in bonds in an example of the kind of reverse QE trade that could be the shape of things to come. In addition, global growth is mediocre and commodity-driven stocks have been smashed.

The stock market may be the worst place to be as the virtuous cycle trade of central bank printing reverses.

On the sidelines of the massive market moves today, one thing that caught our eye was AUD resilience once again. No doubt the lack of QE is bad for global growth and commodities but AUD/USD made an intraday reversal higher from 0.7290 to 0.7360. Its resiliency once again speaks to underlying demand.

Aussie bulls may get a reason to buy at 0030 GMT when the October retail sales report is released. It's expected to rise 0.4%.

Act Exp Prev GMT
Retail Sales (OCT) (m/m)
0.5% 0.4% Dec 04 0:30
Eurozone Retail Sales (OCT) (m/m)
-0.1% 0.2% -0.1% Dec 03 10:00
Eurozone Retail Sales (OCT) (y/y)
2.5% 2.6% 2.9% Dec 03 10:00
Fed Minneapolis's Narayana Kocherlakota speech
Dec 04 21:00

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