U.S. equities markets fell off sharply and Treasuries rose on Friday. The Dow Jones saw a triple digit loss for the second time last week and has had its worst week since November of 2011. Investors pulled capital out of emerging markets and other at risk assets.
Investor faith, as well as Wall Street, in the developing economies has unraveled a bit. We also saw their currencies take a loss as well. The Turkish lira is at a record low and the Argentinian peso fell sharply versus the Dollar.
This morning, Asian and Pacific Rim markets are taking their bearish lead from Friday’s Wall Street plunge and are in the red. Investors are repositioning capital out of developing countries thanks to U.S. reduction in QE and credit conditions in China are also of great worry.
STOCKS
Friday was a black Friday for the U.S. equity markets as the DJIA lost 318.24 points, two percent, as the Dow Jones close down at 15,878.11. The Dow was down 3.5 percent on the week as it saw its worst plunge since November 2011. So far this year the Blue Chip has lost 4.2 percent.
The S&P 500 lost 2.1 percent or 38.17 points to close below the key support of 1,800 at 1,790.29. Industrials were the hardest hit on Friday. For the week the S&P 500 lost 2.6 percent. This was its worst week since June of 2012. The tech heavy Nasdaq Composite lost 2.2 percent or over 90 points to close at 4,128.17. For the week, it was down 1.7 percent and has lost 1.2 percent in 2014.
Let us take a look at the emerging markets, as they are being hit hard this morning in the Asian session. Shares in Malaysia are down over one percent as their currency, the ringgit has hit a new four year low against the USD. In the Philippines, their benchmark is down over 1.6 percent as their currency is trading near a for year low versus the USD set on Friday. Equities in Indonesia have fallen sharply as their benchmark has plummeted almost three percent. The rupiah is trading at a new two week low versus the USD. In Thailand, the SET Index has lost 1.4 percent as the baht is at a new monthly low versus the Dollar. Antigovernment protestors are not helping sentiment as well.
The Nikkei is down over 2.5 percent or 347.85 points and at its weakest level since November. We are extending Friday’s sharp loss, we lost two percent to close Friday, as the yen briefly touched a seven week high near 101.75 versus the Dollar. As global appetite falls, investors are buying safe havens like the yen. In South Korea, the Kospi has lost over 1.4 percent and at its lowest level since August thanks to their currency, the won, hitting a four month low versus the USD.
CURRENCIES
USD/JPY (102.480) is testing a support at our current level. The key support at 101.60 held and we have seen a bounce. We are within a major congestion area now which is from 101.55 to 101.90. A break below this area signals the end of the bull market.
EUR/USD (1.3682) we are testing a key level at 1.37 now. Just a little higher lies 1.3750. If we manage to break through these levels, we could see a nice rally. Failure could make the bears very happy again. GBP/USD (1.6499) is underperforming to say the least. We are stuck in a range from support near 1.6350 to a high of 1.6710.
COMMODTIES
Gold is on a rally.
Gold (1271.30) is continuing its rally as we are looking to target 1280 and maybe 1300 in the near term. A failure at 1274.50 can see range bound trading from 1250 to 1274. Silver (19.905) has failed at 20.30 after testing this key level. We could see some range trading from 19.50 up towards 20.30 for a bit. Support is at 18.50, we will target this level is we fall below 19.50. Copper (3.268) has fallen sharply after failing at 3.30. We are now targeting 3.20 on a fall below 3.25. We are bearish below 3.30.
TODAY’S OUTLOOK
The U.S. Federal Reserve starts its two day policy meeting today. Everyone is expecting them to announce at tomorrow’s conclusion more of a taper. Expectations are for a further $10 billion a month less in asset purchases. Markets will be bearish today as weak PMI data as well as credit issues in China will weigh on investor sentiment.