New and Old Worries Surface
Sudden anxiety on earnings added to Brexit and bond market woes on Tuesday. USD and JPY were the top performers while the pound lagged badly. Japanese machine tool orders are due up later. A new trade was issued on a major equity index to exploit a potentially dangerous double top formation. Monday's short of the DOW30 at 18360 missed the fill by 6 points before the index tumbled more than 300 pts today.
The pound sank, the US dollar rose and the S&P 500 slumped on Tuesday. The pound decline was a continuation of the drop on Friday.
The problem for GBP is that the flash crash cleared out all the dip buyers and bottom pickers and will make everyone wary of buying at least until after Article 50 is invoked. Cable fell another 200 pips and neared 1.2100 and a new wave of Brexit anxiety grips the market.
In the stock market, a different kind of anxiety appeared: Earnings. The S&P 500 fell nearly 30 points and closed below the 100-day moving average for the first time since the immediate aftermath of the Brexit vote.
The selling came after poor results from Alcoa and some smaller players. Adding to the worry is the sudden possibility – although it's still a longshot – that Democrats could with the House, Senate and White House. That kind of power would allow for sweeping changes in health care, taxation and regulation. The market doesn't love a constantly deadlocked Congress but it's preferable to the unknown, especially in sectors that have been targeted by Clinton.
The other stock market worry is earnings. Lackluster growth, higher inflation, the potential for a Fed hike and poor global growth leave far more potential for downside surprises than ever-higher earnings multiples.
On the economic calendar, the top event in the upcoming session is at 0600 GMT when Japan reveals machine tool order data for September. It's the preliminary report and comes on the heels of a 8.4% decline in August. It's not likely to be a mover but a larger potential event could be the yuan fixing around 0115 GMT.
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