The $AUD which is an excellent leading indicator among the currencies, dropped as Australian
employment saw the sharpest drop of 2012.
Other Carry Trade currencies like the Yen were strong (the EUR weak hitting 2 year lows) sending the $USD higher, which puts pressure on stock prices.
Global growth concerns are being blamed as the reason for the sour sentiment, with PBoC/ECB rate cuts from a few days ago as well as further QE from England (all of which was expected and/or at consensus). This seems like old news.
Overnight the Brazilian Central Bank cut by 50 basis points and South Korea by 25 basis points (first cut since 2009), I'm not so sure though that is market moving in and of itself, the financial media is pitching the entire round of cuts as the reasons for dampened sentiment (overall CB cuts and QE).
China new Yuan loan data came in slightly higher than expected so there wasn't anything terrible out of China overnight, they do have GDP coming out overnight tonight.
What was interesting was the overnight ECB loan deposit facility that averages around $800 bn Euros, dropped overnight to $325 bn euros, this is something I speculated would happen or at least that the ECB was trying to engineer as banks take money out to issue loans when the ECB cut deposit rates to zero, but it seems strange to have such a massive outflow overnight days after the ECB cut the deposit rate to zero. It turns out the ECB's current account shows similar size inflows as the overnight deposit outflow, so on balance it would seem money was shifted from one ECB facility to another and NOT lent out.
If the bank money parked at the ECB at 0% deposit rate goes anywhere, I suspect it will be to stronger nations' treasuries, Germany, the UK apparently and the US, thus some of the record setting low yields (some below 0% or in negative territory even such as Swiss 2 year at -0.38 currently) as the ECB no longer provides even incremental yields, of course by design.
The fact is most of the damage or at least a lot of it is ES overnight, was done by the time Europe opened. The Financial media will always look to give you a reason why. It would seem if there's any reason at all, it is a sudden shift in global investor sentiment, however I tend to be skeptical (even though a drop below a key level can cause a snowball effect). I'm usually more inclined to look at what smart money is doing, as I often say and we see nearly every day, price is deceiving.
As for US Economic data, the biggie this morning of course was Initial Claims
| Released On 7/12/2012 8:30:00 AM For wk7/7, 2012 | ||||||||||||||||||||
Initial claims did beat, which is a bit rare and the biggest miss to consensus since 2008, however last week's previous (as usual) was revised higher from 374k to 376k. The better than expected Claims are being blamed on a number of hings such as the holiday shortened week- From Bloomberg we get another line of thought (which was also spoke of by the leaky BLS).... |
Continuing Claims came in a bit higher than consensus at 3306k vs 3300.
There is some concern with major banks being sold in front of tomorrow's NY FED release of the LIBOR Report as the scandal is widening and engulfing more banks.
In any case, I don't see a major catalyst for such a move in the overnight data and sentiment is an easy scapegoat, but sentiment rarely reverses on a dime, I'd be more suspicious of other motives.
Here are the overnight markets in to early trade.
This chart picks up from 1 a.m. to the European open at 3 a.m. EDT at the green arrow and as yo can see, there's a rather large relative positive divergence in to the NY open. This is one of the reasons I suspect this gap down will be faded to the upside.
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