Market Brief
Sell-off in Chinese stock market accelerates as it drags Asian regional markets down. Shanghai Composite erased all of its 2015 gains as it dropped -8.60%, while its tech-heavy counterpart, the Shenzhen Composite, fell 7.73%. In Hong Kong, the Hang Seng followed the lead and retreated -5.17% to 21,351 points. Japanese Nikkei dropped 4.61%, while the Topix index closed 5.86% lower, both breaking their 200dma as global stock enter bear market. In an attempt to curb market sell-off, China allows pension funds to invest in stocks. Funds will therefore be allow to invest up to 30% in domestically listed shares. However, the news did not have the expected impact as market participants would have preferred a reserve requirement ratio cut.
Commodities are also in a very bad shape due to mounting uncertainties about weak global demand. Crude oil prices are in free-fall, with the WTI down 3.26% to $39.13 a barrel, while its counterpart from the North Sea is down 1.07%. Metals are also broadly on sell with copper down -2.10%, aluminium -1.7% and iron ore -2.3%.
Obviously, commodity currencies are feeling the heat this morning. AUD/USD printed a 6-year low as China’s stock market rout raised questions about global demand. The Aussie reached 0.7201 in Tokyo and is now trading slightly above the 0.72 threshold. The Canadian dollar is down 0.40% against the greenback, as USD/CAD broke its low from August 5 (1.3213). On the upside, the next resistances stand at 1.3384, then 1.40.
In New Zealand, the stock market is down 2.50%, while the kiwi lost 1.26% against the US dollar as Deputy Governor Grant Spencer declared that the RBNZ has no choice to cut interest rate further, despite disastrous housing situation, especially in Auckland, where prices rose 21% year-over-year in July. The RBNZ is aware that a low interest rates environment contributes to inflate the housing bubble, however, new lending rules will be implemented on November 1 in an attempt to curb speculative investments in real estate. NZD/USD erased previous gains and is back below the $0.66 threshold. Since mid-July, the pair is moving sideways between 0.6740 and 0.6470 as dollar bulls lose faith in a September rate hike, while in New Zealand, more economic data are needed to determine whether a weaker kiwi is required to put back on track the economy.
In Europe, it is no surprise that equity futures are trading deep into negative territory. German shares are down 3.81%, French ones -3.31%, Swiss ones -3.39%, the Footsie is down 3.34% while the Euro Stoxx 50 index loses -4.02%. In FX markets, EUR/USD surged more than 3.50% during the previous week and is now taking a breather around 1.1450. EUR/CHF stabilises above 1.08, down 1.45% from its 1.0961 high from last week. A short-term support can be found at 1.0712 (low from August 20), while a resistance stands at 1.0961.
Today’s economic calendar will be a light one with SNB sight deposit, Chicago Fed Activity Index and Brazil weekly trade balance. However, tonight’s speech from Fed’s Lockhart will be monitored closely.
Currency Tech
EUR/USD
R 2: 1.1871
R 1: 1.1534
CURRENT: 1.1466
S 1: 1.1017
S 2: 1.0809
GBP/USD
R 2: 1.5930
R 1: 1.5803
CURRENT: 1.5658
S 1: 1.5330
S 2: 1.5171
USD/JPY
R 2: 135.15
R 1: 125.86
CURRENT: 121.12
S 1: 120.41
S 2: 118.89
USD/CHF
R 2: 1.0129
R 1: 0.9984
CURRENT: 0.9434
S 1: 0.9330
S 2: 0.9151