Markets Overnight: Risk-On / Risk-Off Correlations Making a Comeback

by Enis October 7, 2013 5:56 am • Commentary

John Boehner made clear over the weekend that a clean debt limit bill would not be brought in the House.  As a result, the market awaits further negotiations around the government shutdown and the debt limit, and took a risk-off tone to start the week.

  1. Asian Indices Lower, Japan’s Nikkei Breaks Below 50 day ma – Japan has consistently been the weakest Asian equity index over the last week, and Monday was no exception.  The Nikkei was down 1.2%, and the index is now trading below both the 50 and 100 day moving averages.  The USD / JPY cross is trading just above the 200 day moving average, which it hasn’t breached since Nov. 2012.  
  2. European Stock Indices Lower by 1% – The Euro Stoxx 50 index is down 1%, though it’s still trading well above the crucial 2855 support level.  All major sectors are trading down in unison, with no major standouts.  Economic data was light, and no country-specific news is driving price action.
  3. SPX Futures Overnight Low is 1666.40 – Last week’s low (on Thursday) was at 1663.50.  The Sept. 9th gap is 1662.40, which has still not been filled.  The 50 day ma in the futures is 1671, and the 100 day ma is at 1651.  No major economic data today, and the Payrolls report is still not expected to be released until the government shutdown ends.
  4. Treasuries Higher Despite Debt Limit Risk – The price action in the Treasury market has been indicative of traders viewing progression towards an agreement as positive for growth (and hence, lower Treasury prices / higher yields), and headlines indicative of continued gridlock as a sign of lower future economic growth (and hence, higher Treasury prices).  Overnight price action falls in the latter bucket, despite the headline threat of a government default due to the debt ceiling.
  5. Crude Oil, Copper Lower, Dollar Mixed – Crude oil is increasingly trading on economic growth optimism or pessimism as well.  In short, various markets are starting to line up in a classic risk-on / risk-off environment, where commodities and stocks move lower, and Treasuries move higher during risk-off, like today.  Gold and silver are flat.  The U.S. dollar is lower vs. the yen (also risk-off), but also lower vs. the Euro and the Pound, and higher vs. most other (risky) currencies.