Stocks Falter Overnight as Chinese Equity Markets Plunge
U.S. Stock markets backed off from Tuesdayâ€™s strong closes
overnight as China
took moves to limit lending in an attempt to slow down the economy.The news sent shockwaves through global
equity markets as the Shanghai
index dropped 3%.Traders are concerned
that less spending from China
will derail the global economic recovery.
Last night IBM reported strong earnings but this news
couldnâ€™t carry the market.Investors may
have been standing aside while awaiting the special election results from Massachusetts.The news that Republican Brown defeated the
Democratic machine could pressure healthcare stocks, but insurance stocks may
benefit if the current healthcare plan gets defeated.
Today could be a volatile day.The stronger Dollar indicates that investors
are looking for lower yields and safety.This could weigh on higher yielding, higher risk assets like equities.
March Treasury Bonds and Treasury Notes are trading
higher.Traders are driving down yields
as they seek shelter from falling equity markets. If safety remains the theme
throughout the day, then look for more appreciation in bonds and notes.
February Gold is down sharply.Stronger demand for the Dollar is putting
pressure on gold. The charts indicate that a move through $1118.50 could send
this market sharply lower.News that China is asking
banks to limit loans could mean the end for excessive demand for precious and
March Crude Oil failed to follow-through to the upside after
Tuesdayâ€™s closing price reversal bottom.The pattern hasnâ€™t been negated, but there doesnâ€™t seem to be enough
buying power to confirm a valid bottom.Currently this market is trading inside a retracement zone at 78.99 to
77.70.A slowdown in demand from China could put
additional pressure on this market today.
The U.S. Dollar surged against most major currencies as
investors sought refuge in lower-yielding currencies following the announcement
that it was asking banks to curb lending for the rest of the month.
attempt to reign in bank lending is an attempt to put the brakes on a massive
lending spree in an effort to cool the economy.The availability of easy money through government stimulus and favorable
loan conditions helped fuel a huge surge in the Chinese economy. The pace of
the growth is a concern for central bank officials.Tomorrow, China is expected to report
double-digit 4th quarter GDP growth.
The Dollar also received a boost after Republican Scott Brown
won a U.S. Senate seat in Massachusetts.
Scott is expected to vote against the current healthcare plan which many feel
was going to cause U.S.
debt to go through the roof.
The combination of Chinaâ€™s aggressive action with the
Republican victory is expected to boost the Dollar while putting pressure on
equities and commodities.
The March Euro continued its freefall on concerns over Greek
debt issues.Overnight the move
accelerated to the downside after International Monetary Fund Managing Director
Dominique Strauss-Kahn said Greeceâ€™s
debt woes are â€śseriousâ€ť.Without any aid
from the European Union, or the European Central Bank, look for Greeceâ€™s debt
issues to continue to mount.
European officials have stood there ground about providing
financial help to Greece,
saying that it is not their problem to solve. They also fear that providing aid
will mean other countries such as Spain,
Portugal and Ireland
will begin lining up with their hands out in expectations of free money.
Technically, the March Euro broke through the December
bottom at 1.4217, reaffirming the down trend on the weekly chart. The chart
indicates that 1.3800 is the next major downside target, although 1.4000 may
provide some psychological support. At this time, it looks as if the only event
that can turn the Euro around will be if the EU or ECB provides help to Greece.
The March British Pound is trading sharply lower after
support failed and Bank of England
Governor Mervyn King issued a dovish comment about yesterdayâ€™s higher than expected
inflation report. Earlier losses were limited, however, after a report showed
that the U.K.
unemployment rate fell at the fastest pace since April 2007 in December.
Although the British Pound failed to form a closing price
reversal top on Tuesday, it sold off, nonetheless, when a 50% support price at
1.6355 was violated. The chart indicates that 1.6175 is the next downside
Overnight the BoEâ€™s King said that Tuesdayâ€™s reported spike
in inflation was a short-term event and not likely to last.The cause of the surge in inflation was most
likely the additional stimulus the BoE added in late Fall.
The tightening of lending in China is likely to slow down the
growth in the global economy and put pressure on higher yielding assets. This
is helping to support the March Japanese Yen overnight as investors seek lower
yielding assets and safety.
The March Japanese Yen is at a critical point on the charts.
Although Tuesdayâ€™s closing price reversal top was confirmed by a follow-through
break last night, the lack of follow-through to the downside should be a
concern to the bears. Yesterdayâ€™s top was triggered by a strong recovery in U.S. equity
markets.If U.S. stocks fall today, then the
Japanese Yen is likely to take back yesterdayâ€™s losses.Greater demand for the Yen should send the market
up to its next major retracement target at 1.1273.
Yesterday the Bank of Canada left interest rates unchanged,
but took measures to weaken the Canadian Dollar by increasing its asset-buyback
program.Weaker stocks, gold and crude
oil could put additional pressure on the Canadian Dollar.
Technically, a new main range has been formed in the March
Canadian Dollar at .9303 to .9780.This
sets up the next downside target at .9510 to .9461.
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