Originally published by Rivkin Securities
The Dow Jones Industrial Average had its second greater than 1,000 point drop in one week with a percentage decline very similar to that of Monday’s at 4.2%. The index was weak throughout the session although losses accelerated into the close. The S&P 500 and Nasdaq 100 were down 3.75% and 4.2% respectively. The Dow and S&P 500 are now technically in correction territory as they have both fallen over 10% from their highs. While such a correction was expected by many people, the pace of it is somewhat alarming. Despite the weakness in stocks, bond prices actually held firm with the US 10-year bond yield currently at 2.82%. The Australian 10-year bond yield is holding slightly above that level at 2.85% and so far the US yield has failed to surpass the Australian yield although the two are very close.
Typical risk-off correlations that you often see during times of market stress were only partially in effect overnight. As would be expected, the Australian dollar sold off and is now trading at US$0.778, its lowest level in over a month. On the other hand, gold failed to catch a strong bid and only managed to recover the losses sustained during the European session, currently trading at US$1,319 per ounce. The US dollar (traditionally a safe-haven currency) also failed to rally and was virtually flat on the session at 90.30.
Oil prices continue to slide after this week’s inventory data showed another crude build in the US. Traders appear to be particularly concerned about the rapid increases in US production which may now have surpassed Saudi Arabia’s production of over 10 million barrels per day. WTI oil is back to a 60 handle at $60.42.
Today the RBA monetary policy statement is released which will give the bank’s views on economic activity and inflation. The Bank of England decided to keep rates on hold yesterday although the commentary suggested that interest rates will need to rise in the near future, and perhaps at a faster pace than previously expected. As a result the the pound rallied by over 1% against the Aussie dollar.
Data Releases:
- RBA Monetary Policy Statement 11:30am AEDT
- UK Manufacturing Production 8:30pm AEDT