Risk aversion sees stock market sell-off continue

Monday, December 15, 2014

Asian equity markets tracked oil prices lower overnight on Monday with investors in the region starting the week off on a cautious footing, extending the selling pressure seen in European and US markets on Friday. Benchmark equity indices across the region experienced firm selling pressure with Japanese indices leading the move lower. Ten year Japanese government bond yields fell to their lowest levels since April 2013, reaching 0.377% in the latest sign that investors were adopting a pessimistic market outlook and driving demand for safe haven assets.

Crude prices provided a catalyst for the overnight stock market selloff with front month crude oil futures reaching a fresh low as Brent traded towards $60/bbl while WTI futures slipped to $56.25/bbl early on, prompting investors to re-evaluate the global economic outlook. Both benchmarks managed to recover the overnight session’s losses and at the time of writing were trading between 1.8-2.0% higher towards the start of the European session. However, we expect the appetite for risk to remain subdued today as market participants position themselves ahead of key macroeconomic data due out later today and the Fed meeting on Wednesday.

Despite the overall risk aversion across global markets investors are hopeful that this month’s FOMC meeting will offer further indication of continued market support as a growing number of market participants expect the Fed to keep borrowing costs low for the foreseeable future and provide further guidance on the path interest rates may take once the eventual rates rise is initiated. Accordingly, spot gold prices traded lower overnight, extending Friday’s losses and testing support levels towards $1,213.50/oz with a modest recovery in the USD against a basket of major currencies adding further downward pressure to the yellow metal. A growing majority of market participants expect the Fed to raise interest rates in 2015 but key to the outlook will be the language that policymakers use to outline the current market situation as well as potential developments. Further dovish language could see gold prices slip back towards the 50 day MA just above $1,200/oz, erasing the year’s modest gains.

Yields on 10 year Japanese government bonds head to a 20 month low

GJGB10 Index Japan Generic Govt 2014 12 15 07 46 49 

Gold trades lower ahead of this week FOMC meeting

XAU Curncy Gold Spot Oz 2014 12 15 07 52 54 

Events for today

0001

UK

Dec

Rightmove House Prices

1330

US

Dec

NY Fed Manufacturing

1415

US

Nov

Industrial Production

1415

US

Nov

Capacity Utilisation

1500

US

Dec

NAHB Housing Market Index

LT: 

Dec  Sugar (LIFFE) 

OE: 

Dec  Sugar (NYBOT) 

Topics: US Fed, USD, Gold
More from: Kash Kamal