Very much a risk-off night for markets with equities and some commodities taking the brunt after Chinese stocks lurched lower in afternoon trade to finish down an eye-glazing 8½% on the day.  A year ago, the Shanghai composite was 2,177; yesterday it closed at 3,752.  In between of course, it rose to over 3,200 last December and by June had peaked at 5,166.  Margin calls, and for some stocks trading halts only damage already brittle sentiment at a time when Chinese growth sentiment is under a cloud.  Growth sentiment has not been helped by more “earthy” Chinese indicators such as last Friday’s Caixin Manufacturing PMI that printed much lower at 48.2 and yesterday’s industrial profits data down 0.3% y/y to June, continuing stalling industrial earnings since last August-September.

The selling in Asian equities carried over into Europe, with the Eurostoxx 600 index down 2.2%, and not even a better than expected German Ifo Survey for July – Germany’s premier business activity barometer – could save the day for European bourses.  Not only did German business expectations surprisingly improve (the lower Euro is one explanation this writer can think of; there may well be others), but German business’ “current assessment” also improved suggesting that business activity has consolidated through the middle of the year after some gains from the latter part of 2014.

The selling in US markets was much less severe, but continued, the S&P 500 closing down 0.73% as the Fed prepares to start their meeting tonight.  US durable goods orders were somewhat better than expected in June, but there were some nasty downward revisions to May orders that were even larger, a dampener over the recent pace of business equipment investment.  The Atlanta Fed’s GDPNow for Q2 remained at 2.4%, GDP being released Thursday along with the BEA’s annual revisions.

In this risk-off mood, metals and oil were sold lower, LME copper by 1.43% and Brent by 3.09% to $52.93/bbl, oil prices weighed down also by more than ample supply.  Spot Qingdao 62% fines iron ore rose $0.93/t to $52.93.  US Treasury yields declined while European yields were mixed.

For currencies, there seem to have been several cross threads but for the AUD, it’s only been a “sell” signal, the Aussie remaining very much on the defensive, this morning on its overnight lows, selling coming from negative Chinese growth and risk-off sentiment.  But neither has it been a wholesale rush back to the USD.  The yen has garnered some “safe haven” support, while the Euro also managed to make some gains, supported by the Ifo Survey.  The spot Bloomberg US$ index shed 0.41%.

Coming up today/tonight

Not that the market would have taken too much of a clue from local reports, even perhaps if they were top tier, but it’s a very quiet day today with only the weekly ANZ-Roy Morgan Consumer Confidence reading for last week (w/e 26 July), coming after last week’s 4.5% bounce-back as headline Greek news faded from local headlines.

Tonight the initial focus will be on the first cut of the UK’s growth rate for Q2, a pick up from 0.4% in Q1 to 0.7% for Q2 tipped, annual growth of 2.9%.

In the US there’s Case-Shiller house prices and the Richmond Fed manufacturing index are due, but the market will be more interested in Conference Board’s measure of Consumer Confidence, including the measure’s “Jobs hard to get” index, very much a labour market view from the street where improving perceptions of the job market have stalled recently.  As for headline consumer confidence, a pull back to 100.0 from 101.4 is tipped.

Overnight

Copper and oil down further: Eurostoxx 600 -2.2%, Dax -2.6%, CAC -2.6%, FTSE -1.1%.  Dow -128 points to 17,441, -0.7%, S&P 500 -0.7%, Nasdaq -0.6%, VIX 15.60 +13.5%.  Mumbai -8.5%, Nikkei 225 -1.0% and ASX 200 +0.4%; ASX SPI futures this morning -0.7%.  US bond yields: 2s at 0.65% (-3), 10s at 2.22% (-4).  WTI oil at $46.98 (-2.4%), Brent at $53.12 (-2.7%), Malaysian Tapis (yesterday) $56.05 (-1.4%).  Gold at $1093.80/oz (+0.7%). Base metals: LME copper -1.4%, nickel -2.4%, aluminium -0.2%. Iron ore $52.4/t +1.8% Chinese steel rebar futures -0.8%. Soft commodities spot futures: wheat -1.5%, sugar +0.0%, cotton -1.3%, coffee -1.5%.  Euro Dec 14 CO2 emissions at €8.03/t (0.1%). The AUD/USD’s range overnight 0.7266-0.7325; indicative range today 0.7235-0.7290; the AUD/USD is 0.7272 now

German Ifo Survey Business Climate (Jul) 108 (L: 107.4; E: 107.2); EC M3 Money Supply (Jun) 5.0% (L: 5.0%; E: 5.1%); UK CBI Trends Total Orders (Jul) -10 (L: -7; E: -6)

US Durable goods orders (Jun) 3.4%, but May revised down to -2.1 (L: -1.8%; E: 3.2%); Dallas Fed Manufacturing (Jul) -4.6 (L: -7; E: -3)

For full analysis, download report:

• Markets Today: 28 July 20115 (PDF, 324KB)

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