Global Markets Overview – 4/11/14

Buyers strike on choppy markets

Another thinly traded rout in the US overnight has put most investors on notice as we approach US earnings season.

The NASDAQ once again looked to break 2011 records after having suffered its worst three-day trading rout since 2011 on Monday; last night it had its worst single day of trading since 2011, falling 3.1% by the close. This occurred as a buyers strike saw bio techs and online media being hammered once more.

This once more sees the NASDAQ in the red year-to-date, as the fundamentals continue to weigh on investors' trading strategies as profit and ultra-high growth see money coming off the table.

The rout on the NASDAQ spilt over into the S&P and the DOW, with the both the major indices registering a 2.1% and a 1.6% pull-back as valuation traders run the rulers over elevated stock valuations.

There isn't a real pattern or major event to concentrate on to explain the current conditions befalling the markets. There does appear to be a point now where US markets are finding resistance, however even some of the biggest equities bears can see a case for the S&P to make 1950 by year-end.

With JP Morgan reporting tonight, it will be a starting indicator for how earnings season should pan out. Most are expecting 1% growth over the quarter, and considering the conditions over the last quarter, this is probably about par, so beats are possible.

Commodity risks

Moving back to Australian-centric issues, the developments from the China trade data are interesting, with the collapse in imports seeing a huge turn around, falling 11.3% from 10.1% the month before. The collapse is down to the fall in commodity prices - iron ore dropped by 9% year-on-year, coal by 8.8% and copper around 8% as well. Having seen materials names championing their first-half numbers on a lower AUD and higher commodity prices over the first half of the financial year, the fall in import prices from their largest customer coupled with an AUD that is heading back to 'uncomfortably high' levels is an issue to be aware of.

On the counter side to the collapse in price is the fact iron ore shipments jumped some 19.2% over the month, meaning demand is still there. In the back-end of the month, China's policy makers started to talk up domestic demand and for stabilisation in the growth of the economy. With the PBoC stating publically that it is not going to inject fiscal liquidity back into the market, infrastructure will be the way out for China to keep the country moving, which will mean demand for steel, copper and other domestic metals. So we may see a short-term pull-back in materials as the trade data rattles valuations, but demand for commodities is likely to increase over the medium term as China looks to pick up its slowing economy.

Ahead of the Australian Open

So, after making a near six-year intraday yesterday and a new near six-year closing high, the ASX is going to give all and more of that back today. We are currently calling the ASX down 54 points on the 10am bell (AEST) to 5427, as the leads from the US and the concerns around commodities take their toll on the low volume environment.

Japan is once again riding the crest and troughs of a choppy market, and the strengthening currency will not help the Nikkei, which looks like continuing its year trend of trading in the red to finish the week.

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