Yesterday’s late day selloff and concerns that fiscal and monetary stimulus from China will be limited sent Asia Pacific markets lower overnight. The Nikkei and Hang Seng both fell about 2.4% while indices in Shanghai and Shenzen took 6-7% hits again.
Unlike earlier this month, however, damage from weakness in mainland China has been relatively contained. European and North American indices started out the day weak but have been clawing back those declines. As the morning has progressed, the DAX and FTSE have moved back into the green with index futures for the Dow and S&P following suit.
Crude oil is having a particularly strong rebound with Brent and WTI both rising about 2.5% and Brent regaining the $30.00 level. This rebound has helped to make CAD one of the top performing currencies of the day, with CAD/USD continuing to hold above $0.7000. Another rally for base metals like copper price has AUD on the rebound while GBP also continues to bounce back from depressed levels. Better than expected Polish GDP has PLN on the rise today as well.
Trading action over the last 24 hours confirms that we have entered a bottoming process for markets but also that it could be a bumpier bottom than usual, with the potential for significant swings in both directions that could create additional opportunities for trading. Bears appear to be exhausted but still able to muster up the occasional counterattack with bulls gaining strength but still struggling to maintain consistent conviction.
It’s a big day for earnings reports. Results from consumer staples companies have been coming in better than expected particularly from consumer product giants J&J (N:JNJ) and P&G (N:PG), plus in the US plus grocer Metro (TO:MRU) in Canada. In industrials, 3M (N:MMM) has also posted a big quarter. Later today, Apple (O:AAPL) reports earnings in what could be a make or break report for the smartphone leader’s stock prices. Canadian National (TO:CNR) is also due after the close today.
We also could see positioning ahead of tomorrow’s Fed decision with the 2-day FOMC meeting getting underway today. Gold continuing to advance even with China fears easing suggesting that the street is increasingly expecting the Fed to soften its tone a bit, which could take the edge off USD, particularly with so many US companies complaining about the forex impact on their earnings again this quarter.