Equity markets resume slide on valuation concerns

Friday, April 11, 2014

The sell-off in US equities resumed yesterday after a brief midweek respite as tech shares led the move lower. The S&P 500, DJIA and NASDAQ indices all experienced heavy selling pressure, erasing gains accrued over the past two sessions on concerns that market valuations were overinflated. Despite initial weekly jobless claims falling 32K w/w to 300K during the first week of April, its lowest level since May 2007, investors have switched attention to corporate earnings with many choosing to take short term profits ahead of any potential negative surprise. With JPMorgan and Well Fargo due to announce Q1 earnings later today and Citigroup releasing earnings on Monday the market volatility that has dominated this week is expected to continue. On the macro front, the University of Michigan confidence index as well as PPI data will provide further market colour.

Asian equities faced continued selling pressure overnight with Japanese stocks following US markets lower and Chinese markets faltering slightly on inflation data. Benchmark Japanese equity indices capped the worst week since June last year on a technology sector sell-off and continued yen strength as the Nikkei and TOPIX closed 2.38% and 1.34% lower respectively. The yen touched a three week high against the dollar yesterday, trading towards 101.50 as investor sentiment shifted.

Chinese data showed producer price inflation dropped for the third consecutive month to -2.3% y/y, overshooting expectations of -2.2% while consumer prices rose to 2.4% y/y in March from 2% the previous month. With deflationary pressures for producers deepening and consumer price inflation remaining well below the target rate of 3.5% policymakers have the necessary incentive to support the economy with further stimulus and with Q1 GDP data expected to show further weakness on its release next week, mainland Chinese stocks could rally higher on the expectation of further stimulus measures.

Three month LME nickel prices extended its rally yesterday, with the metal posting gains in all but one of the last nine sessions. Prices reached a 12-month high early on this morning, trading towards $17,250/tonne as the metal remains on track to gain 10% since the start of the month. Supply concerns continue offer support for higher prices as the Indonesian export ban as well as tensions between Russia and the West has seen prices increase almost 25% since the start of the year. Meanwhile, LME warehouse inventories have declined 2% since the start of the month on a stronger stainless steel demand outlook. 

Initial jobless claims drop to their lowest levels since 2007

INJCJC Index US Initial Jobless 2014 04 11 07 29 12

Nikkei follows US markets lower, slumps on tech sell-off

NKY Index Nikkei 225 2014 04 11 07 42 29

Chinese producer prices weaken for the third straight month

CHEFTYOY Index China PPI Yoy 2014 04 11 07 33 03

LME three month nickel prices rally higher as warehouse inventories drawdown

LMNIDS03 Comdty LME NICKEL 3 2014 04 11 08 00 24

Events for today








PPI Core




Michigan Survey


May Sugar (LIFFE)

All times UK Local Time

Topics: Inflation, JPY, LME, Nickel
More from: Kash Kamal