Asian stocks declined on Friday after weak manufacturing figures have been released for the U.S., European and Chinese economies. A much anticipated downgrade to the credit ratings of 15 of the world’s largest financial institutions by ratings agency Moody’s also took its toll on the stocks. The downgrade also reflected poorly on commodities and currencies such as the Australian dollar, which are highly dependent on the prices of resources. The FTSE CNBC Asia 100 Index, which tracks the performance of markets across Asia, slipped 1.2%. Japan’s Nikkei average dropped 0.9% to trade at 8,746.8, while at the same time the broader Topix moved 1% lower to 746.8. Seoul stocks plunged as their American counterparts hit hard yesterday posting their worst loss in a three-weeks’ time after manufacturing data from around the world came in worse than expected, adding to investors’ worries about the global growth. The Korea Composite Stock Price Index (KOSPI) declined 2.1% to trade at 1,849.5 points. Australian shares also moved into negative territory after market participants retreated from risky assets and bought safer ones as concerns about the global economy grew. Miners suffered the most as metals prices declined overnight. BHP Billiton and Rio Tinto both slipped over 2%. The benchmark S&P/ASX 200 index dropped 1% to 4,045.9. Meanwhile, New Zealand’s benchmark NZX 50 index slid 0.4% to trade at 3,396.4 points. In Hong Kong, the Hang Seng Index dipped 0.9% to 19,086.09. The China Enterprises Index of top locally listed mainland firms was trading 0.9% lower than yesterday’s close. In Southeast Asia, Singapore’s Straits Times Index and Malaysia’s KLCI shed 1% and 0.3%, respectively. Markets in mainland China are closed today, marking a public holiday, but they will resume trading on Monday.
European stocks ended their session into the red on Thursday as market participants cashed in their winnings after a four-day rally, which halted when U.S. Federal Reserve refrained from more aggressive measures to stimulate the economy, and China and Germany released another batch of weak economic data. The Fed extended Operation Twist, which is meant to bring down long-term borrowing costs by buying longer term bonds and selling short-term ones. Investors are hoping these actions will stimulate the global economy, but most of them had priced in a new round of quantitative easing in asset prices ahead of Chairman Bernanke’s statement. Basic resources were among the worst performers, declining sharply after figures from China, the world’s largest consumer of metals, indicated that the country’s factory sector contracted for an eighth consecutive month. Other cyclical sectors also finished into negative territory, with autos slipping 1.8% and tech stocks erasing 0.9%. The FTSEurofirst 300 index moved 0.4% lower to close the session at 1,009.91 points, after posting its highest closing level since May 11 just the day before. The Stoxx Europe 600 index finished 0.5% lower at 248.40, interrupting a winning streak, lasting four days. Investors in Europe were watching closely the developments around Spain as an independent audit of its banking system was scheduled to be released during the day. The assessment showed that the country’s banks will need between €16 billion and €62 billion to recapitalize. Spanish stocks were dragged to lower grounds ahead of the audit’s announcement, but spent most of the day into the green after the Spanish government succeeded in selling €2.2 billion of bonds of various maturities, exceeding its target range of €1 billion to €2 billion. Yields on the benchmark 10-year Spanish government bonds moved lower by 16 basis points to 6.57% in the secondary market. The IBEX 35 index finished the highly volatile session in negative territory at 6,773.50, erasing 0.3%, after hitting an intraday high of 6,914.90 earlier on. Despite losses of the broad market, most banks still finished higher, with Banco de Sabadell SA gaining 4.3%, Banco Popular Español climbing 3.5% and Bankinter SA advancing 3.6%.
U.S. stock markets were severely hit yesterday after weaker than expected economic figures continued pouring through the day and more troublesome news came from Europe. Major benchmark indexes dropped by nearly 2%, with the Nasdaq being the worst performer among all. All 10 sectors of the broad S&P 500 index declined, with energy weighing the most after losing more than 4% and affecting the prices of materials, which were also hit hard. Bad economic news marked the session, coming worse and worse by the hour. The data was just what traders were waiting to start selling as they were quite disappointed by the Fed’s announcement that a third wave of quantitative easing will not follow suit, at least for now. On the Dow Industrials, Alcoa and Hewlett-Packard got hammered, while 17 of the 30 blue chip stocks lost more than 2%. All seven of the major indexes in the Dow, S&P, Nasdaq and Russell closed below their respective 50-day moving averages. The economy figures were driving the prices of stocks in yesterday’s session. The Philadelphia Fed index, considered by many analysts as a strong indicator of consumer demand, posted a weak reading of -16.6, which points to a contraction. Other economic gauges were no better: weekly jobless claims inched lower, but the four-week moving average marked a fresh new high for the calendar year, while the purchase managers index report claimed manufacturing grew at its slowest pace in 11 months with hiring dropping and demand waning. Home sales also were worse off in May even though their prices moved higher, which investors interpreted as a sign that the recovery of the real estate sector is slow. The CBOE Volatility Index, consider by many as the best indicator of fear in the market, skyrocketed 17%. The rising U.S. dollar put pressure on commodity prices, sending gold below $1,600 an ounce and oil under $80 a barrel. Silver was on its way to close at a 17-month low. Yields on government debt declined as investors moved to safe havens, with the benchmark 10-year bond falling to 1.60%.
The week ahead:
Friday: EUR: German Current Assessment, German Business Expectations, German Ifo Business Climate Index; CAD: CPI (YoY), CPI (MoM), Core CPI (MoM);
Dow Jones Industrial Average
As mentioned above, the Dow dropped sharply yesterday, following the release of bad economic data through the day. The American blue chip index opened flat and was quite volatile at the market opening trading above its 200-period moving average for some time. Possibly, the fundamentals took their toll on the index and sent it spiraling down. The Dow broke through its 25-period moving average and finished the session at 12,573 close to the lows for the day. Support is provided by the 50-period moving average, which is currently standing at 12,500, while resistance stands at the former support level at the 25-period moving average. Oscillators retracted from the highs they reached in the first half of the week and are currently trending towards the lower bands of their respective ranges. The MACD also declined from the peak it touched on Wednesday and is currently standing at 89.57.
Gold
Gold extended its slump yesterday after investors bought dollars and shed holdings in assets related to the real economy. After the broken through the key 1600 level the selling momentum grew and bears send the precious metal below its 200-period moving average without any resistance from the bulls whatsoever. The bullion touched lows of 1564 for the session, finishing slightly above them at 1569.31. Today, gold is trading in tight range after marking fresh new lows earlier on, but paring some of its losses later. First significant support levels stand at the double bottom formed at the end of March, when the precious metal has been traded slightly below 1550. On the upside, resistance exists at the 200-period moving average, which has been penetrated yesterday. Oscillators continued to move lower with the stochastic and the relative strength index in oversold territory. The MACD is below 0, approaching lows it posted in mid-May when gold started a corrective movement, lasting several days.
USD/JPY
The currency pair extended its gains yesterday after market participants bought the dollar and other safe haven currencies. After pushing through the 200-period moving average on Tuesday and retracing back to it in the morning hours of Wednesday. After that, the pair was trended higher almost all day long, ending the session slightly below the important from a psychological standpoint level of 80.00. Earlier in the session it touched highs of 80.33. Today it may move higher again with the dollar currently changing hands at 80.39 yens after touching exchange rates of 80.50 earlier on. On the downside, support is standing at the triple top formed during the first week of June. On the upside, resistance is formed by the 80.50 level, where the intermediate highs of May 22nd stand. Oscillators are trending higher with the relative strength index at 72, the stochastic at 94 and the MACD at the highs it touched in the beginning of the month.
Disclaimer:
The information in this analysis is collected from different sources and should serve for informative purposes only. The author shall not be held responsible for the validity of the presented information. No part of this analysis recommends the purchase or sale of a currency pair or any other financial instrument.
