Key News
* Pound Drops as Home Sellers Lower Asking Prices Most This Year
(Bloomberg)
* Nikkei 225 Declines Most Since March on GDP, U.S. Confidence (Bloomberg)
* China Buys Treasuries, Proving Dollar Demise Overdone (Bloomberg)
* New York Factories Expand for First Times Since 2008 (Bloomberg)
The Event Agenda
The Morning Run-Down
Today the VIX (stock market implied volatility) has spiked 16% higher and currency volatility has jumped across the board. Risk is being taken off.
The dollar is higher this morning, except against the yen. Friday’s sharp reversal in risk appetite took stocks lower, commodities lower, yields lower and the dollar higher. The move is continuing today.
First, here’s a look at the activity from Friday…
Including today’s 5.7% drop in the Shanghai Composite, the Chinese stock market has now fallen 17% in nine trading days. China reported foreign direct investment in July down 35.7% from the same period a year ago. Because China is the outperformer thus far in the global recession, though underperforming its growth of the past decade, it’s critical to watch the sustainability of the stimulus led growth of the second quarter. And the markets are starting to indicate that the recovery theme could be over-rated.
Japan’s GDP report overnight came in positive territory as expected, but below estimates. The yen is benefiting in a general unwind of risk in the yen crosses. USD/JPY is down 0.40%, EUR/JPY is down 1.3% and AUD/JPY is down 1.9%.
Comments made by BOE Governor King about the strength of the pound in last week are headlines today. But the pound is dropping on general risk appetite and the relative weakness in the UK economy. The housing data overnight showed house prices dropped in August by the most in eight months.
Key Charts
Stock markets have been the proxy for risk appetite. And China’s stock market has lately become the reference point for gauging the sustainability of the risk trade—and it’s pointing lower.
Thanks to abating risk appetite, the dollar index is in an impulsive C-wave that looks likely to break the downtrend from March.
And the Australian dollar is outpacing currencies on the downside after failing at a significant technical level of resistance…the 61.8% retracement from entire crisis driven decline last year.
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