Global Markets Overview –September 26, 2014

It was risk off for global equities with investors focusing on geopolitical risk and repricing of fed hike expectations. While both these themes have been known for a while, it seems the fact price action just continues to deteriorate is discouraging investors from jumping back into equities. On the economic front, we saw a sharp drop in durable goods orders after having been distorted by a sharp rise in aircraft orders the previous month while unemployment claims also rose more than expected. Early in the week I highlighted how the bulls and bears continue to play a game of cat and mouse, with the bulls looking for a floor in the recent sell-off while the bears consider adding to shorts. With choppy price action being the dominant theme, patience will be key in this environment. At the moment it certai8nly seems that floor will take time to realise. While equities were sold off, the greenback remained fairly resilient and managed to gain some ground against the risk currencies in particular. The euro and the AUD plunged to new lows against the greenback with EUR/USD dropping below its July 2013 low and AUD/USD dipping below 0.8800.

AUD and EUR smashed against the greenback

The momentum remains firmly pinned to the downside on AUD/USD and it seems traders will be eyeing a move to January lows at $0.8660 in the near term. While the pair has recovered some groundthis morning, the current risk off tone is likely to see traders continue to look at selling into strength. The $0.885 region seems like an ideal sell zone given it was previous support. With commodities struggling and the USD remaining firm, it is difficult to see a sustained recovery in the pair. EUR/USD traded at its lowest since November 2012 and this move seems to have triggered some mild profit taking on shorts. However, most traders will be looking to continue trailing stops lower and ride this trade for as long as they can. Later today we receive consumer confidence readings for Germany and France and any disappointment will only lead to further losses for the euro.

ASX 200 to open weaker

Ahead of the open we are calling the ASX 200 down 1.1% at 5322. All up it's been a woeful week for the local market with the ASX 200 down 1% which is likely to double on the open. This will see us trade near March lows with a risk-off tone likely to be the dominant theme. Iron ore dropped another figure, trading below 79 now and the weakness was fairly broad-based across the base metals space. Gold was an exception with a fairly solid bounce as geopolitical risk played into the hands of safe haven assets. While this might benefit some of the precious metals names, it will still be a brutal day for the materials complex. BHP' ADR is pointing down nearly 2%.

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