Stocks Take a Dive

Daily Analysis - 11/03/2015

US Stocks Turn Negative for the Year as the Outlook Crumbles

Weak consumer spending and lackluster macroeconomic data see US equity indices have one of their worst sessions in months as economic forecasts are revised lower and dollar strength saps corporate earnings.

US Benchmark Indices Negative for 2015

American equities experienced one of their worst sessions in months following a 332 point drop in the Dow Jones Industrial Average as disappointing consumer data weighed on the outlook. The savings rate for consumers has risen to a multi-year high and with spending taking a tumble in the first quarter, expectations are for a struggling retail sector as consumer spending fails to rebound. The surging dollar, which is rising at the fastest pace in 34-years, is not helping corporate multinationals deriving revenues from abroad as exports become more expensive. After reaching and crossing the previous record highs reached during the dotcom bubble, the Nasdaq Composite has also retraced lower, with stocks giving up gains for 2015 year-to-date. The recovery in employment is not enough to offset other disappointing factors like the problematic student loan bubble and popping subprime auto-lending market.

Oil Jerks Higher on API Data

Oil managed to retrace some of the session’s earlier losses as API Crude Stocks witnessed a surprising drawdown of 404,000 barrels on expectations of an inventory gain of 4.75 million barrels. The rally higher was short-lived with WTI crude oil running into substantial resistance at $49.00 before resuming the trend lower. This comes on the heels of recent reports showing that the US could run out of inventory space by June if inventory builds continue at their present pace. Inventories are already at 60% of total capacity meaning that it could eventually necessitate storage on floating tankers as storage space runs out. This could lead to substantial declines in oil prices as the lacking storage space creates an overwhelmingly oversupply problem for producers who will subsequently dump product on the market driving prices even lower.

Greek Clock Ticking Down

With the deadline rapidly approaching for several important repayments, Greece is quickly running out of operating cash as it seeks to stave of default and bankruptcy. The European Commission, IMF, and ECB are set to meet today in Brussels to discuss the latest Greek reform proposals as the time limit looms large. Sentiment from regional leaders is negative as they accuse the Greeks of foot dragging in the situation which requires imminent resolution to avoid a credit event. Without the additional €7 billion transferred under the terms of the last bailout, cash is forecast to run out by the end of the month as the nation must already grapple with shortages of basic goods. Uncertainty and a stronger dollar have sent the Euro tumbling lower against peers, falling below 1.0700 as investors await the results of the latest discussions.

AUDJPY Descending Triangle Technical Setup

The Reserve Bank of Australia’s easing of monetary policy has seen the Australian Dollar weaken notably against peers in recent months as the risks to the outlook mount with falling commodity prices and a burgeoning housing bubble. Meanwhile, Japan sees no imminent change to policy despite disappointing GDP growth data. With real growth actually negative, the Bank of Japan might have to ease policy further. However, carry-trades are slowly unwinding, hence the downward pressure on AUDJPY. The descending triangle pattern has a bearish bias and is presently consolidating between the downtrend line and support at 92.150. Any move below support should be treated as a breakout while a move higher beyond the uptrend line could signal an upwards reversal.