Not much relief this am from levels that were hit last night when global stock markets plunged Post BREXIT vote to the tune of nearly 4.5% in US equity futures while nearly 8% in Japan which still held those losses and NIKKEI closed down nearly 1300 points. Pound Sterling fell to the lowest levels since the 1980s vs USD, undercut both 2009 and 2001 lows near 1.35 down to 1.32 which was last reached around 1985 over 30 years ago. S&P futures were down over 100 overnight just before midnight and have reclaimed a bit of that, but still are showing losses to the tune of 3.6%, or down 75 points. Where to now? Well Fear gauges are exploding this am, with VIX having reached 26 overnight, or up over 40%, while S&P has managed to hold May lows- To have any meaningful stabilization and recovery, global yields will need to stop going down at such an alarming rate. We saw some evidence of that in the last few days, and Equities responded higher, but now this morning's pullback , thus far, erases all of those yield gains. The Dollar meanwhile has skyrocketed vs the British Pound and Euro, which looks to be breaking down on a bigger level, and USD gains could prove complicated for US Earnings momentum given that multiples are already "expensive" at 18.. assuming a 114.76 full year SPX earnings while Russell 2k was at 23.7. Paraphrasing legendary Boston money manager Scott Black, , "given that earnings fell nearly 7% in the last qtr, a full year 114 number for S&P requires nearly 20% growth in Q3 earnings and 37% growth in Q4.. TO GET A market P/E of 18. How a rapidly escalating USD will help the earnings situation is tough to see. For now, the ramping up in Fear is likely to mean real selloffs with prices still within striking distance of highs proves short-lived. but the next few trading days would be quite volatile until we stabilize. For most people who are shaking their head in amazement, thisBREXIT vote is largely on par with a series of events and social mood globally which seemingly can't get any stranger . Charts and addtl comments below
S&P thus far has retraced about 1/3 of its entire four month rally OVERNIGHT- S&P nearly hit the first key Fib target at 1992 and will be important to see May lows HOLD on this pullback. For now, despite all the carnage being seen overseas and in US markets overnight, the degree of weakness here in US Equity indices still hasn't really done much damage. but holding above May lows is the first step towards eventual stabilization. Equity markets seem to be holding thus far down -3.4% about an hour prior to open, in the futures markets.
At one point the British pound was down to the lowest levels since 1985, undercutting both 2009 and 2001 lows. It has bounced back , but still in tough shape technically. Holding 1.35 is paramount to stabilization here
Europe has largely given back all of its gains in the last few days and after the constructive ability to recoup prior lows, prices now lie back down UNDER this level
Yields have also completely ROUNDTRIPPED, as the surge in Bonds globally has brought US 10yr back down under 1.53%, with 2012 lows near 1.37 being important. To see FINANCIALS work, a key constituent for S&P, yields will need to find support sooner than later and hold and turn back higher. At current levels, this week will end right at the lows, which is certainly not too constructive
With most concentrating on Pound Sterling, its worthwhile to mention that the EUR/USD has dropped down UNDER monthly lows and violated this entire trend since late last year, a real negative for the Euro at a time when countries very well might COPYCAT what the UK has done and set off a chain reaction, which would be very tough for the Euro- 1.11 is going to be an important level to reclaim for EUR vs USD and under would lead to 1.08 eventually and then potentially down to Par in the next 12-18 months.
The larger EUR/USD chart looks to be breaking again, not dissimilar from what occurred last Fall after two equally volatile counter-trend waves in price. A deteriorating EURO vs USD would likely have very damaging effects for Commodities, and despite gold being higher for UNCERTAINTY reasons this am, precious metals likely wouldn't do well in a rising Dollar environment.