Stock sell-off continues ahead of Greek vote

Tuesday, January 06, 2015

US equity markets closed lower for the fourth straight session yesterday with the S&P 500 posting its biggest one day drop since October last year as sliding crude oil prices saw a widespread sell-off in energy stocks. Growing concerns among investors that the rout in oil markets will see capital expenditure and earnings cut have seen global equity markets around the world start 2015 on the back foot with the recent sell-off in US benchmark indices erasing much of late December’s rally. The heightened risk aversion among market participants has seen the VIX index spike towards 20.00 in recent sessions as the S&P 500 erased 3.25% over the past four days.

Market doubt was fuelled further by deteriorating conditions in Europe as data released yesterday indicated German inflation hit a five year low with markets volatile ahead of Greece’s snap election. The euro continues to trade under pressure this morning despite recovering some territory towards 1.1955 after reaching a nine year low of 1.1864 against the dollar yesterday. The Greek stock market has lost over 36% over the past twelve months and with elections looming for January 25th we could see further selling pressure in the ASE index.

The bearish tones spilled over to Asian trading as Chinese stocks pulled back from a five year high as investors took profit after the recent run amid concerns that the move was overdone given the current economic backdrop. Japanese benchmark indices faced considerable selling pressure as investors sought out safe haven assets, with the yen strengthening for a second straight session against the dollar, trading at a two week high of 118.66 at one stage before pulling back towards 119.00 at the start of the European trading session. Markets are likely to experience significant downward pressure from the recent rout in oil prices and with the current outlook indicating further bearish moves we could see extended selling pressure in global equity benchmarks.

The flight to safety saw spot gold prices gain 1.36% yesterday, gaining for the second straight session as investors sold off risk assets in favour of the yellow metal. Activity overnight and early this morning has seen prices build on firm support around yesterday’s close, targeting $1,210/oz as near term resistance towards the 100 day MA at $1215.29/oz remains in sight.

VIX spikes as sell-off in S&P 500 continues

SPX Index SP 500 Index SPVIX 2015 01 06 07 29 54

Yen strengthens against the dollar for a second session

JPY Curncy Japanese Yen Spot 2015 01 06 07 43 31

Flight to safety sees gold rally for a third day

XAU Curncy Gold Spot Oz 2015 01 06 07 46 13

Events for today

0200

CN

Dec

HSBC Services PMI

0855

DE

Dec

Markit Services PMI

0900

EZ

Dec

Markit Services PMI

0930

UK

Dec

Markit/CIPS Services PMI

1445

US

Dec

Markit Composite PMI

1500

US

Dec

ISM Non-Manufacturing

1500

US

Nov

Factory Orders

All times UK Local Time

Topics: Gold, Crude oil, EUR, JPY, VIX
More from: Kash Kamal