One of the clearest signs of investor confidence in a market is whether investors and traders are willing to hold positions over a weekend or not. It’s one of the reasons that makes Friday and weekly closes particularly significant technically.
With markets having been so volatile over the last two weeks and with the US closed Monday for Martin Luther King Day, confidence could be a big factor driving trading action today.
The big story in markets overnight has been another plunge for crude oil with Brent and WTI falling 4-5% and both taking out $30.00. An upcoming review of Iran’s nuclear program could pave the way for sanctions to be lifted and the country’s return to the world market, spooking traders. There are still a lot of uncertainties over this, however, including whether all sanctions will be lifted, when they will be lifted, and how much oil Iran will be able to supply to the market on an ongoing basis; would it be a quick or slow ramp up?
Asia Pacific markets have also been selling off with mainland China indices down about 3.5%, while copper and the Hang Seng fell about 1.5%. China loan and money supply growth came in below expectations weighing on sentiment along with comments from Bank of Japan Governor Kuroda indicating no plans for additional stimulus in his country.
Downward pressure has continued into morning trading in Europe and North America with the FTSE, DAX and other continental indices falling about 2.3% and US indices like the Dow and S&P trading down about 1.5%. Falling commodity prices have also sent resource currencies falling another 1% or so. Interestingly the metal sensitive AUD is down more than oil sensitive CAD, an indication of just how depressed the loonie has become in recent days.
The trading week’s not over yet either, US markets have the potential to be quite active as traders react to a flurry of earnings and economic announcements and position ahead of the long weekend. Intel (O:INTC) appears to be continuing the emerging trend of strong earnings offset by weak guidance and its shares initially traded lower following its report. A profit warning from Analog Devices (O:ADI) likely won’t help technology sentiment either. Reports from US financials so far this morning have been mixed.
Interestingly, however, we aren’t seeing a big move back into defensive havens. Gold is only up marginally while the JPY rally could be attributed more to the Kuroda comments on stimulus. This suggests that even though markets are lower today, the recent downtrend may be nearing exhaustion.
Today’s US retail sales report may attract particular attention as an indicator of consumer spending through the holiday season. The potentially positive impact of lower energy prices may continue to be offset by the loss of so many high paying oilpatch jobs this last year. Empire manufacturing and industrial production may also attract attention if there are any surprises.