After Wall Street sold sharply lower once more yesterday, there are signs of stabilisation this morning. The big question is how traders respond to a technical rally. It will also help to show whether the market has sustainably shifted outlook. If a technical rally is sold into and used as another chance for the bears to renew sort positioning, then equity investors could be in for a rough ride in the coming weeks. However a solid rebound that starts to build higher lows again could be seen as s steadying hand on the tiller. It is interesting to see Asian markets finding support late into their session. The move seems to have been supported by a dramatic positive surprise in the Chinese Trade Balance, driven by a sharp improvement in exports. The balance was +$31.7bn well above the expected +$19.4bn (+$27.9bn in August), with imports +14.3% (+15.0% exp, +19.9% last) and exports an impressive +14.5% (+8.9% exp, +9.8% last). It is also interesting to see that bond yields are picking up again. There seems to have been some confusion with how Treasury yields have moved recently and the impact. Initially with the equities selling pressure we saw yields rising (bond selling off) as equities have, this reflected serious fear on markets with traders selling everything. However, in yesterday’s session there was a sharp move lower on Treasury yields as investors dipped back into the safe haven of US bonds again, with the usual bonds/equities relationship resuming. This hit the dollar. With yields ticking back higher again today, this is coming as market sentiment is picking up again. So, if bond markets can stabilise this should help broader market risk appetite to also stabilise. However, bond markets need to be watched closely as if this rebound in yields turns out to be another push strongly higher, then we are likely to see renewed selling pressure across risk assets once more.
Wall Street closed sharply lower again, with the Dow over 500 ticks lower (-2.1%) and the S&P 500 -2.1% at 2728. However, futures are showing a retracement higher today, well over a percent higher currently. This rebound on futures has helped Asian markets higher into the close with the Nikkei +0.5% and China’s Shanghai Composite +1.0%. In Europe the moves are also looking higher. In forex markets there is a dollar rebound showing through primarily with yen underperformance, whilst other majors are showing little real move. In commodities, gold is now unwinding some of yesterday’s huge gains, currently dropping back by $7, whilst silver is also slightly lower, whilst oil has rebounded 1% after yesterday’s latest loss.
It is a relatively quiet end to the week with little on the calendar for the European morning aside from Eurozone Industrial Production at 1000BST which is expected to deteriorate to -0.2% for the year. The University of Michigan Sentiment is at 1500BST and is expected to show a m