Market mood, at least in equities and commodities, has turned a little sour this morning following release of key Chinese data overnight. The releases included CPI and GDP, the latter coming in an extraordinary 9.8%, suggesting of an economy racing ahead of itself and likely to cause further monetary tightening by the Chinese authorities. It was hardly a great surprise therefore to see overnight markets move sharply lower as a result with Asian equities falling the most since last November.
The MSCI Asia Pacific Index retreated from a 7 month high, sliding 1.2% to 138.87. The Shanghai Composite dropped 1.3%; the Nikkei closed down 1.23% to close at 10,427 and the Hang Seng too fell 1.26% to close at 24,113. All this has led to a fall in this morning’s FTSE100 which, at time of writing, is trading at 5902 (already down 1.2% since yesterday), with both the German DAX and French CAC indices also pulling back sharply.
Regardless of the overnight Chinese data the FTSE100 daily chart was already set for a pullback given the bearish engulfing candle created in yesterday’s trading combined the struggles the index has been having in holding onto the 6000 price handle. The bearish sentiment for equities will, no doubt, spill over into the US markets later today as both the S&P and Dow Jones ended their respective sessions with weak looking candles. However, with some important data also due out in the US this afternoon, namely the unemployment claims, existing home sales and the Philly Fed Manufacturing Index we could be in for an interesting US session.
Commodities too have pulled back with both oil and copper giving up earlier gains. However, the most interesting aspect of the commodity sector has been the reluctance of gold to rise as a consequence of the market’s sudden aversion to risk. Indeed gold is still struggling at the $1360 per ounce. In addition the dollar too has failed to find any favour in this risk averse atmosphere with the dollar index currently trading at 78.56 and well below the key support area at 78.76 which has now been breached. Much of this fall can, of course be attributed to the market’s view that interest rates in Europe are likely to rise – quite why the ECB would even consider such a move at such a delicate stage of the current economic cycle is beyond me – but as traders and investors it is essential we discount our own prejudices and views. In other words – let the market speak to us and not try to tell the market what it should be.