Overnight Headlines

*Asia stocks drop following Wall Street’s worst day since June 2020

*Safe haven dollar eases, but risk sentiment remains fragile

*Gold flat as steady dollar, firmer US bond yields curb appeal

*Australia’s unemployment hits 3.9%, lowest level since 1974

US equities plunged as they suffered their worst day since the early months of the pandemic. The benchmark S&P500 fell 4% with 98% of stocks declining. The tech-heavy Nasdaq tumbled 5% and the Dow lost 3.5%, closing at its lowest level since March 2021. Asian stocks are lower as the sell-off spills into other market. US futures are mixed, having been in the green earlier in the session.

USD recovered, bouncing back from a three-day losing streak. EUR failed to derive support from ECB officials repeating their summer guidance for rate hikes. EUR/USD dipped below 1.05. GBP fell on marginally sub-forecast CPI and remains below 1.24 this morning. EUR/GBP was firmer but could not reach 0.85. CHF and JPY were the strongest majors. USD/JPY fell to 128 before bouncing. AUD continues to trade around 0.70 and underperformed CAD.

Market Thoughts – No more BTD?

Risk sentiment took a huge hit yesterday after the strong bounce in markets the day before. There is much talk about bear market rallies as markets rarely drop in straight lines. Peak-to-trough falls of up to 50% in previous equity selloffs have seen major countertrend rallies of between 20% and 40%. But the problem with these rallies was that they created a sequence of openings to buy into the market at a series of mini-tops.

It does seem like some of the acronyms of the bull run that have been concocted over the last few days may now be redundant. BTD (Buy the Dip), FOMO, (Fear of Missing Out) and TINA (There is no Alternative) look like they need an update. SLR (Sell the Latest Rally) would be an option perhaps? Clearly, we are not acronym makers but the dangers of a slowdown and recession are creating huge concern.

Chart of the Day – Dow breaks down to new year-to-date closing low

Disappointing retail earnings were being blamed for yesterday’s massive selloff. Target led the declines, tumbling 25%, the largest one-day fall since Black Monday in October 1987. It said higher costs and disrupted logistics would hurt its profit margins. This warning came a day after Walmart, the world’s biggest bricks-and-mortar retailer, cut its earnings guidance. The company had said it had been wrongfooted by broad inflationary trends.

The revaluation in retailers is cancelling out the excesses driven by the pandemic. In turn, the Dow has fallen back below trendline support just under 32,000. This month’s bottom is 31,228. Next support is just below 30,000 with a Fib level at 29,794. The 200-week SMA is 29,193. Initial resistance sits around 32,000 and 32,272. This week’s high is 32,689.