Global market rout continues on demand concerns

Tuesday, February 04, 2014

US markets plummeted on weaker manufacturing data, posting the largest one day decline since June last year as investors sold off on economic growth concerns. Both the S&P 500 and DJIA ended the session significantly lower, losing 2.28% and 2.08% respectively, smashing through longer term moving averages after the ISM manufacturing reading for January came in at 51.3, markedly lower than the 56.0 reading expected according to Bloomberg data and well below the 56.5 reading the prior month. After the January FOMC meeting announcement that bond buying would be trimmed by another $10bn a month, markets have begun to adjust as investors revise their expectations for a year of decreasing central bank support. Attention has now shifted back to the federal debt limit which could be breached by the end of this month. Critics have argued that Congress should stop kicking the can down the road but fears of another government shutdown may prompt a short term solution as Democrats and Republicans go head-to-head on the issue. Trading activity is expected to remain buoyant throughout the day as investors juggle earnings releases and factory output against a risk-off backdrop.

Japanese benchmark equity indices suffered their biggest one day loss since June as investors took a step back from risk assets with the Nikkei declining 4.18% and the TOPIX losing 4.77%. The combination of slower growth in China and a reduction of stimulus in the US prompted a further sell-off which has seen the Nikkei lose 13.25% while the TOPIX has erased 12.21% off its value since the start of the year. Exporters have been hit in recent sessions by a stronger yen, which dropped just below 101.00 against the dollar for the first time since 22nd November last year. The anticipation of an increase in sales tax from 5% to 8% in April could further hinder the economic recovery Prime Minister Shinzo Abe has helped orchestrate.

Front month Arabica coffee prices rallied 8.76% yesterday extending the advance which has seen prices rise towards levels last seen in May as persistent dry weather in Brazil raises concerns in the world’s largest grower and exporter. Prices have rallied almost 20% over the past five sessions while many market participants expect that depleted reservoirs and scant rainfall predicted over the coming months will propel prices higher.   

Three month LME copper prices dropped for the 9th straight session yesterday, depressed by weaker manufacturing demand. Prices have lost over 4% since the start of the rout, dropping towards $7,020/tonne at one point yesterday as US manufacturing growth compounded worries after last week’s weaker Chinese manufacturing data. Prices have found support around $7,000 in recent months, with levels reaching a recent low of $6,910 in November before finding support for steady gains throughout December. The week long holiday in China is expected to exacerbate the weakness on lower liquidity.

 

Yen weakness leads to a pullback in benchmark Japanese equities

JPY Curncy Japanese Yen Spot 2014 02 04 07 46 05

Front month Arabica prices rise on drought worries

KC1 Comdty Generic 1St KC Fut 2014 02 04 07 52 10

Three month LME copper prices extend declines on demand outlook

LMCADS03 Comdty LME COPPER 3 2014 02 04 08 06 43


Events for today: Tuesday, 4 February 2014

CN Market Holiday  

0930

UK

Jan

Markit/CIPS Costruction

1000

EZ

Dec

PPI

1500

US

Dec

Factory Orders

1500

US

Feb

IBD Sentiment

View Economic Market Calendar

Topics: Copper, Equities, JPY, Coffee, LME
More from: Kash Kamal