Dip Buyers Emerge After US Stocks Fall Most Since May

Good morning, it is Tuesday the 21st of September. I hope you're doing well and remember to breathe, it's gonna be okay. Stocks have recovered after US indices, as you can see here, fell their most in about 4 months yesterday. And in fact, the close on Wall Street, the S&P was down about 1.7%, pretty similar losses in the Dow. The Nasdaq was underperforming, down around 2.2%. And of course, all of this and eminating from fears about the potential contagion effects from Evergrande, the Chinese property developer, and the real estate sector in China, and what that risk carries then, not just domestically, perhaps for global markets as well. So yesterday really saw the bulk of that, and as you can see here, it's the first time those three major indices have all finished lower for quite some time. In fact, in terms of the three major indices finishing lower than 1.5%. That's the first time that's happened actually since, I think, going back several months beyond that of the sell-off that we had in the summer in July. Consequently, things like the VIX popped yesterday about 23.5%, highest level since May. Metal prices have also come under some quite severe selling pressure. The impact then on commodity demand from one of the world's largest consumers, of course, in China, and their property market. Iron ore, for example, fell below $100 a tonne for the first time in more than a year. But anything associated really with, with building and development came under some pressure there in the kind of base metal space as well. A couple of things then from a charts perspective I just wanted to talk about first. And as you can see here, we did into the final hour of Wall Street see some very aggressive dip buying. And so just having a look at the charts here on the S&P, and I'm also going to look at the European German DAX index for a bit of perspective. Now for one here, just marked up a level here of a fib retracement from really the peak of some of the price activity from the second half of last week down to the bottom of the route that was seen yesterday. And you can see here the 382 fib just providing a bit of a near-term area there of resistance and support to price action as we go into this European open. So in terms of the technical setup for today, I'd be keeping an eye on there at 62.75 as support, followed by the pivot, which was an area of rough resistance support as well to some of the late US and overnight APAC session at 51.50. Any further upside recovery, obviously you've got kind of got this area here, 43.80, which was around, as you can see, the low um, before really the, the sell-off took hold yesterday, and also was an area of resistance as well as the 50% retracement of that move. So overall on the daily chart, of course, yesterday we were watching that 43,47,75 with a very keen eye. You can see here that the selling pressure really took hold on the breakthrough of that low that we had in mid-August the 19th. And you can see that extremity of that wick. But importantly, we have recovered and we're bouncing still off that level. And in fact, you can see here top left on this S&P chart, it's printing green at the moment, indicative that we continue to rebound from those lower levels. In the DAX, it's pretty similar, if not even more poignant in terms of the, the technical levels. As you can see here, the DAX rallying in sympathy. Again, nothing new has come out. In fact, Evergrande shares were down another 7% overnight So it's a little bit of just dip buying mentality given it's the largest sell-off that we've had in a number of months. In the DAX, you can see really strategically key level here that's held yesterday, which was around the 15,000 psychological mark. 15,017 was that low on the similar price point at the 19th of July to where we were below yesterday, and a bit of a bounce off that level. So that level holding up. and rationale behind some of the, um, strategic nature of the dip buying that's materializing at the moment. Otherwise then, as the equities were reversed course a little bit, we're seeing a little bit of a fatigue just creep into some of the moves faded from yesterday. So gold down about $3 in proximity to pivot, top right. The US T-note as well, just below its pivot, down about 6 ticks as well this morning. Currency-wise, not too much to speak of at the moment. Both EURUSD and Cable, not too much going on. Cable perhaps just outperforming, giving its underperformance a touch that was seen yesterday. And for crude oil markets, from a technical perspective, just keeping an eye here at around the 71 marker, around this 71.07. You can see it was a previous point of resistance support last week, held up really nicely at the back end of last week and has acted as resistance since. So as we come back up to the higher bound of this most recent period of somewhat consolidation. I'd just be keeping an eye as that as a, as a kind of inflection point for price for WTI today. We're trading up 90 cents at the moment. So again, as per other instruments, recovering a little bit from yesterday's rout. So a couple of things to look out for then. I'm going to have a look at what happened overnight. As I mentioned, Evergrande Group, they did actually fall again overnight. They were down about 7% in Hong Kong trade. Again, remember mainland China is still closed for a holiday at the moment, as is South Korea. Credit markets also coming under pressure, fueling concerns about broader contagion still within that region despite the more broader asset class recovery we're observing at the moment. This morning we did have S&P Global Ratings overnight said the developer is on the brink of default. at this present point in time. So not particularly new information there, and hence the reason why I think it hasn't really had too much of a distinct impact. Otherwise, what I thought was quite interesting yesterday was a bit of a split opinion for what comes next really with stocks, and I guess short-term, JP Morgan winning out. They actually said that the S&P 500's worst drop that we've had in many months is an opportunity to buy stocks as the global economic recovery is poised to pick up in momentum. That was according to the strategists at JPMorgan. They said the market sell-off that escalated yesterday, they believe, is an opportunity— is what was primarily driven by technical selling flows, CTAs and option hedges. They were mentioning in an environment of poor liquidity and an overreaction of discretionary traders to perceived risks. On the flip side, This not so much super short term. This is more a call that MS have had for a couple of weeks now, and they're looking more about the weeks ahead. Their chief investment officer Mike Wilson reiterated his call yesterday that worst case the S&P 500 could plunge more than 20% from its peak. Scenario, the strategist said, looks more possible at this point in time. So yeah, it's still a bit of a split. At the moment on Wall Street in the short term. Obviously, so far initiated really in the final hour of Wall Street trade, we have seen some very aggressive dip buying come in. Uh, today we'll be really interested to see whether or not we steady the ship or do we retest back to the downside. Again, we're not really expecting too much in the way of any breaking news for Evergrande, but I would suggest a degree of vigilance in case the company comes out and says anything specifically, or something from the state of China, whether they make any definitive commentary, will be quite key for, for market sentiment intraday. The other thing we've had overnight is the Canadian election. So Prime Minister Trudeau is poised to win a third term and a snap election, but fall short of regaining a parliamentary majority, which was the rationale behind why he called the snap election. So that has not materialized. Even with a minority though, early results suggest the Liberals will have a stable government, which will allow Trudeau to continue with big spending agenda that's largely been backed by his government's most likely partner, the left-leaning New Democratic Party. As a guide, as much as this sounds quite messy, the fact that they've failed to secure the majority, the past 7 elections in Canada have now produced 5 minority governments. So, uh, on average they've lasted about 2 years. Minority governments generally outside of Canada don't typically last that long given the nature of the fractured, uh, political split. But the idea of being a minority government is not a new one in Canada. They're fairly used to that. So the actual reaction in Canada, in the CAD currency, has been pretty muted. I think that's to be as expected because I don't think really the election result has carried that much in the way of any surprises. And we did have the RBA minutes overnight, just so you're aware. The Aussie not reacting. The general take was a reiteration of the central scenario that conditions for rate increases will not be met until 2024, and the board is committed to maintaining highly supportive monetary conditions at the moment. And of course, that's as they've continued to tackle the recent outbreak of the Delta variant in the country. Um, the final thing that I did want to mention just before I go to the calendar was this. Now I have shared this article on my Twitter account. If you're not subscribed to Reuters, just go on an incognito window, copy paste it in there, and you'll be able to read the full article if you can't get access on the paywall. Um, essentially what this is suggesting is the JP Morgan quant team So they run a model, and the reason why it's getting a bit of press attention is because their model was particularly accurate. Given the, the big miss that we had in analysts' forecasts for the previous Nonfarm Payrolls report, which was a big disappointment, the JP model was actually pretty close. And so people are looking at it again as a lead indicator, as perhaps something to be aware of that might be more accurate going forward. Basically, what they're suggesting is that we could be heading for another weak jobs report number for September. We haven't got long to go, obviously, a week or two until we get that latest payrolls reading. That says— well, the reason behind that from a data perspective is that consumers appear to have dialed back their travel and leisure spending since Labor Day. The jobs tracker created by the Quant Team says the Fed, by a range of alternative data including Chase credit card usage, airport security check volumes, suggest a September job growth number in the region of around 333,000. So yeah, there's a couple of things in the article they, they kind of detail out with some graphics and things like that, the data points in which they're using. Again, I think you take this with a bit of a pinch of salt. 'Oh, they were right last time.' The journalists are latching on to that. I'd like to see a bigger, longer kind of backtesting of how accurate that, that model has been over time, because it doesn't really say that. But I don't disagree with what they're saying. I mean, some of the data which they show definitely has been showing signs of weakness, and this is quite a key component, of course, in regards to the labor market in the US and decisive weighted measure of how the Fed are going to be thinking around their timing of tapering. And obviously we've got that meeting happening tomorrow night, and it's this type of information— of course not the JP model, but the information the model is based on— that Fed officials will also be looking at with a great deal of scrutiny as to whether or not now is the time to be giving hefty signals in towards the timing of tapering, which the Wall Street consensus is for November commencement of the reduction of bond buying. So looking at the day ahead, what have we got? Pretty quiet really through the morning. We've got US building permits, housing starts coming out at 1:30, and you've got ECB's Deguindos speaking around this sort of time this morning. Nothing seen as yet of note. Fixed income supply out of Germany, $24 billion worth of a 20-year bond auction coming out at 6 PM as well this evening. But that's your wrap. So remember, if you are not subscribed to the channel, please do. Um, new briefings coming every day. You would have seen last few days as well. We'll be putting out any breaking news on Evergrande or anything that really hits the tape that's of note, and it's worth analyzing and making my commentary on. So feel free to hit the bell icon as well to be notified whenever a new video comes out. All right guys, take care, have a good day. I'll catch you tomorrow.