Morning Update 10/24/2012
Ahead of the Australian and Asian open, markets will face pressure after the selloff in Europe and North America. The Dow Jones Industrial Average had its worst loss since June as disappointing earnings from companies like 3M Co. and DuPont brought the focus back to the fundamentals and the slowing global growth story. Netflix disappointed after the bell as it missed earnings expectations and margins keep shrinking.
One positive for the markets is that Facebook beat revenue and earnings expectations. The best news of the release was that ad revenue accelerated.
Oil fell to a 3-month low as the slowing economy raised demand concerns. The EIA will release crude inventories today and the expectation is a for a build in US crude stockpiles, another bearish factor. Gasoline prices slid for a 9th straight day, its longest losing streak in 25 years. Gasoline futures on the NYMEX were last trading at $2.605.
The next focus for the markets will be the FOMC policy statement due today and US housing numbers. On Thursday US durable goods data comes out and on Friday US GDP. Good data could possibly stop the slide and give the market a bounce or further extend market weakness if the news is bad. The trend right now is lower and in a trending market new lows are to be sold.
In Europe, the Spanish economy contracted for a 5th straight quarter. Gross domestic product shrank 0.4 percent in the latest quarter. Euro-area consumer confidence is still negative and has been decreasing the past 4 months. Worries that if Europe continues to slide that it will bring the rest of the globe with it. So far China has avoided a hard landing and the US has been able to muddle along. Right now the global growth story is muted and the markets are having trouble finding a reason to buy.
In the currency markets US dollar strength was seen across the board as risk sentiment soured. Traders are looking to central bankers in the hopes of more stimulus to create a risk-on appetite. Until that happens, expect further selling of risky assets and further strength in the US dollar and US and German debt.
Dollar strength lead to selling across the metals complex. Gold futures fell to a 6 week low. Gold is having just above the critical $1700 an ounce level. Silver again couldn’t hold the $32 level and is trading just above $31.50.
In the grains market, wheat and corn fell while soybeans rose. Australia is going to track foreign buyers in the agricultural sector after US agricultural giant Archer Daniels Midland made a $2.8 billion offer for Australia’s grains handler GrainCorp.
Today in Australia economic news, we get the consumer price figures for the September quarter from the Australia Bureau of Statistics. Signs of low inflation will lead to expectations of a rate cut from the Reserve Bank of Australia.
With the weakness in the markets, the trend appears to be lower. However, I would not be initiating fresh shorts. If you’re already short, look to add on further weakness. Traders should not be looking to buy the dip either as the bear trend is decidedly in tact for now.
