Trader thoughts - the long and short of it

The risks apparently keep piling up, making a play into global shares far less appealing than they might have otherwise been. What has been the bastion for the market over the last 4 days of aggressively selling is the performance of US shares, but even that is beginning to be thrown into question. The Dow Jones held steady overnight, but the tech stocks continued their rout, dragging the benchmark S&P lower by 0.23 per cent and the Nasdaq (more pertinently) by 0.9 per cent.

Once more, the fear afflicting financial markets is peculiar to describe, because there’s no single impetus behind it. It’s more a general apprehension for what the future may hold that has hit critical point and inspired a collective mayhem amongst traders. It is very much like a game of musical chairs now, with the view that the troubles in emerging markets and the impact of trade wars must by necessity spill into developed markets. The matter becomes simply of when this could all erupt. Proving the power of sentiment in the market, the overall reluctance to invest has seen a sweep of profit taking, with investors apparently to cash gains until things look a little better

SPI futures are pointing to a 25 point fall open, with the ASX 200 looking likely to extend the losses that has defined trade over the course of this week. It’s been a horror week for the ASX this week, which has not only pulled back from challenging its multi-decade highs but sold off to a point that takes the index back to levels not seen since June. Given what has so far been considered a solid fundamental backdrop, the panic-selling that has stricken traders in the last week has come as somewhat of a shock. The sell-off feels over cooked, but the it must be said the charts are indicating further falls are within the realms of possibility in the short term.

In times when sensibility appears to have been thrown out the window, leaning on the technical charts can provide some cold relief. The precipitous fall in the ASX 200 yesterday defied much technical no-how, with buyers and sellers evidently overwhelmed by the extent of bad news. Concerning is the fact there will likely be required months of toil to reclaim the territory abandoned this week, with the question today in the face of likely further falls: how far can this extend? Worryingly, on a daily chart there seems to be plenty of room to fall, meaning an ASX below 6100 is conceivable to end the week.

In what has been somewhat of a curious element to this week’s risk off play, safe havens haven’t spiked quite as much as in previous weeks. It was only last night that signs in currency and bond markets of a flight to safety really emerged, lagging several days of major selling in global equities. The USD/JPY – as a terrific measure or fear in the market – dipped to multiweek lows overnight, while measures such as the VIX edged higher, bit by bit. US Treasuries pushed higher, in a move that appears overdue, but at 2.87 per cent yield for the 10-year asset, still trade well above the month to date lows clocked a few weeks ago.

In terms of currency markets, the AUD/USD has held its line over the last 24 hours, perhaps revealing the strength of support at around 0.7160. The local unit does appear driven to test new lows, but to the credit of the Aussie Dollar, within the context of global risk-off sentiment, its drop does appear contained. The situation for the AUD isn’t showing signs of worsening today, but it would only take a swift drop at the hands of a particularly hostile Tweet or new report about developed markets exposure to emerging markets that would sink the currency. Remaining on standby appears the strategy of choice for AUD traders, until further information can be ascertained.

Coming now to the close of the week, attention shifts to the week’s biggest release, which is US Non-Farm Pay Rolls tonight. It is the last labour market release before the highly anticipated September meeting of the US Federal Reserve, at which markets are pricing in a near 100 per cent chance of an interest rate hike. Tonight’s release will be viewed through the lens of what the data may mean for markets not in the immediate future, but in 2019 and beyond, where markets are only pricing one more rate hike from the US Federal Reserve. If the numbers come in hot, look for a rally in the greenback; although it must be said that the US Dollar often drops on the back of US Non-Farms as buy the rumour sell the fact trade.