the daily chartist

Recap for 28.09.2015 Stock, dollar destroyed, biotech masacre

published 6 years ago
S&P500 Daily

Fear drives men to destruction. But fear can also make us do things we thought impossible. It hasn't been called officially yesterday Black Monday, but I will go with this while I describe the events from yesterday. First off the calendar was filled with news from the US and FOMC members speaking. Core PCE Index (act:0.1%; fore:0.1%; prev:0.1%), Personal Spending (act:0.4%; fore:0.3%; prev:0.4%), Personal Income (act:0.3%; fore:0.4%, prev:0.5%), Pending Home Sales (act:-1.4%; fore:0.4%; prev:0.5%). 

 And if these weren't the catalyst for the dollar drop and stocks destruction, the extension of the falls were accelerated from the comments of the FOMC members.  The uncertainty about the timing of the interest rate hike weighed and shrouded world markets in shadows. While New York Fed President William Dudley and San Francisco Fed head John Williams signaled their support for an interest rate hike this year, echoing comments by Fed Chair Janet Yellen last week, Chicago Fed President Charles Evans has warned that inflation and dollar headwinds may not subside until the middle of next year. Speaking in New York, Dudley Indicated that US economy is doing "pretty well", and if the economy continues its present course, there is a strong case for liftoff. 

 Meanwhile, economic news from the U.S. showed National Association of Realtors' pending home index, a measure of strength in the housing market, unexpectedly declined in August, raising concerns that home sales might be poised for a decline in the near future.

 The pending home index fell 1.5 percent in August. This came as a surprise to economists, who were generally expecting a 0.5 percent increase for the month.

However, U.S. consumer spending rose a little more than economists had predicted last month, according to new government statistics released Monday. This came despite a slower-than-expected expansion in income.

Data released by the U.S. Department of Commerce showed that personal spending rose by 0.4 percent in August. Economists had expected the figure to rise by 0.3 percent. Personal income also increased during the month. The figures showed a 0.3 percent advance during August, below expectations of a 0.4 percent increase.  Investors look ahead to Friday's all-important U.S. jobs report for further clarity on the strength of the economy and the timing of a rate rise. Monday, the U.S. dollar fell 0.13 percent against the euro, 0.49 percent against the Swiss franc and 0.51 percent against the yen. Meanwhile, the greenback held steady against the pound.

 In the Asian trading, the U.S. dollar fell to 5-day lows of 1.1264 against the euro and 0.9718 against the Swiss franc, from yesterday's closing quotes of 1.1244 and 0.9738, respectively. If the greenback extends its downtrend, it is likely to find support around 1.14 against the euro and 0.96 against the franc.

 Against the yen, the greenback dropped to a 5-day low of 119.56 from yesterday's closing value of 119.91. The greenback may test support near the 118.00 region.

 Meanwhile, the greenback rose against the pound and the commodity currencies such as the Australian, the New Zealand and the Canadian dollars amid risk aversion, tracking the weak cues from U.S. and European markets as well as lower commodity prices amid worries about the health of China's economy.

 The U.S. dollar rose a 4-day high of 1.5692 against the pound, from yesterday's closing value of 1.5172. The greenback may test resistance near the 1.51 region.

 Against the Australian, the New Zealand and the Canadian dollars, the greenback advanced to 5-day highs of 0.6946, 0.6289 and 1.3412 from yesterday's closing quotes of 0.6989, 0.6327 and 1.3394, respectively. If the greenback extends its uptrend, it is likely to find resistance around 0.68 against the aussie, 0.61 against the kiwi and 1.35 against the loonie.

 Looking ahead, U.K. retail sales data, mortgage approvals data and M4 money supply data, all for August, and Eurozone business climate index for September are slated for release in the European session. In the New York session, preliminary German CPI data for September, Canada industrial product and raw materials price indices for August, U.S. S&P/Case-Shiller home price index for July and U.S. consumer confidence index for September are set to be released.

 And on the Biotech front again: bloodbath. IBB dropped almost 8% on Monday - the biggest drop since August 2011 - testing back to Black Monday lows and now unchanged since October 2014. This is the longest losing streak for Biotechs since Lehman. High yeild bond prices have fallen for 12 of the last 13 days, and yesterday's decline was the biggest daily drop since Nov 2011, breaking towards Nov 2011 spike lows. All the major US Equity indices are at or below Black Monday lows. Everything went red post-QE3. More worryingly, US financials made new 2015 lows (below BML) as they continue to catch down the credit risk (as Glencore counterparty risk rise).

 Treasury yields started the day off higher but as data, and FED speaking hit along with US Open selling pressure, safe-haven flows flooded into equities. 30Y -9bps is the biggest absolute drop since early July. 

 The USD was sold after the US Open - having been bid trough Asia and Europe. 

 Commodities were mugged all day as we suspect commodity group liquidations and counterparty risk reductions weighed on the whole complex.

 All the Fed speak has confused markets even more with 2015 rate hike odds now at record lows. 

 S&P500 breached all levels bellow 1900 and now it will have to find some support at 1875 level, if bears breach there - 1853.2 and 1831.2 are next.