Risk Aversion is Back

Analisi Giornaliera - 29/09/2015

Equity Markets Trend Lower Across the Board as Risk Sentiment Turns


The Japanese Yen continued to post gains as risk aversion saw traders and investors shun risky assets. USDJPY closed yesterday with a loss of nearly -0.50% for the day and is currently down -0.84% week-to-date.

Commodities Take Another Hit

Key commodity markets tumbled yesterday on a new bout of selling pressure as concerns about the widespread deflation and global trade downturn impacted sentiment. Copper fell -1.49% while Gold erased its gains from Thursday, slipping -1.19% yesterday. The energy complex was not immune with crude oil shedding -2.05% during the session. The slump in the commodity prices took its toll on the equity markets as shares in Glencore, a UK listed company lost nearly a third of its market value. Analysts have estimated that the prolonged slump in the commodity prices could potentially wipe out the company. Commodity markets are further stressed by remarks from China citing reduction in raw material purchases. Base metals and crude oil fell on the news and while gold managed to hold its ground, since Friday the precious metal has given up gains and remains weaker.


Pickup in US Consumer Spending

Data released yesterday showed the US economic recovery remains on track as consumer spending rose 0.40%, beating estimates and bolstered by the revision higher in the previous month's data from 0.30% to 0.40%. The data released yesterday showed that the US consumption trends were strong with the 3-month annualized rate of domestic consumption expanding at 3.50%. The Personal Consumption Expenditure figure matched expectations, posting a modest gain of 0.10%. Based on the latest dataset released, the Atlanta Fed's GDPNow model now forecasts third quarter US GDP to grow at a 1.40% pace, up from 1.30% previously. However, third quarter growth forecasts remains low in comparison to a stellar 3.9% GDP print the second quarter. The US Dollar traded weaker yesterday as the Euro managed to close the day with gains of 0.55%, forming a bullish engulfing pattern which could potentially signal a near-term upside rally.


Equity Markets Poised for Downside

Asian equity benchmarks were seen sharply trading deep in the red today with the Nikkei 225 down -3.89% and the Shanghai Composite falling -1.82%. The Nikkei tumbled to an 8-month low largely on account of weaker commodity stocks. European markets are also expected to open in the negative today with futures pointing to a softer open as yesterday's theme is likely to dominate today's session. Lack of any major economic releases will keep the markets focused keenly on the commodity slump. Early trading today showed gold sliding -0.17% while silver was down -0.09%. S&P500 futures for December closed yesterday at 1873, currently trading near the identified support level. A break below 1873 could potentially set the S&P500 Index into a free-fall with the next main support at 1800.


GBPUSD Descending Triangle Technical Pattern

The Pound continues to give ground versus peers, especially the US dollar as US data continues to fuel expectations of a rate hike before the end of 2015. When taking into account the strong showing from second quarter GDP and expectations of continued expansion due to expanded consumption and spending, the stage is set for a further US dollar momentum to the upside.   The GBPUSD continues to decline, consolidating between a near-term downtrend line and horizontal support sitting firmly at 1.5157. The confluence of the lines has created a descending triangle pattern exhibiting a strongly bearish bias. A move below support would be indicative of a triangle-based breakout to the downside to be accompanied by additional momentum and volume as confirmation. A move above the near-term downtrend might indicate a reversal back to the upside.


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