SCOREBOARD: Overcooked Apple

Equities and commodities were smashed overnight – again. It was a sea of red, sparked by disappointing earnings and news of an inventory glut at an Apple supplier. That stock was off some 6 per cent on the news, and that hit tech stocks more broadly which was one of the key underperforming sectors last night (Nasdaq off 1.9 per cent). Financials were the other one, down almost 2 per cent on disappointing earnings from Bank of America – stock down almost 5 per cent, while energy stocks were off 2 per cent or so also as the price of crude fell 2.2 per cent ($86.73).

Fact is though, all sectors were hit hard and it looks like we might just get the ‘Spring break’ or 'Summer slowdown' that we get every year. It’s probably a bit early to tell at this point though. I mean, stocks are only off a bit over 2 per cent from their peak, and that’s with last night’s big falls – the S&P500 ended 1.4 per cent weaker (1552) and the Dow was down 0.9 per cent (14,618).

Its commodities that are getting smashed and these moves are completely detached from economic fundamentals, way overdone. I mean, it’s pretty hard to justify the rout that we are seeing across the board I might add, when you get things like the latest Beige Book (collection of chief executive anecdotes from the Federal reserve):

“Reports from the 12 Federal Reserve districts suggest overall economic activity expanded at a moderate pace during the reporting period from late February to early April.”

That’s decent growth – everything we see out of the US shows decent growth. GDP growth is at trend, employment growth above, and we have inflation rising at trend rates (inflation is not low compared to recent history as some like Paul Krugman would have you believe).

Thing is, there ain’t nothing wrong with trend growth coming after a housing market collapse. It’s actually very good. So seeing this commodity rout (copper was off 3.8 per cent, while gold fell another $12 to sit at $1376) is odd.

On the topic of gold, Stephen Bartholomeusz wrote a great piece yesterday (Digging deep in search of gold's puppeteers, April 17) on the fall in gold. Plenty of people are scratching their head over it, and while Stephen gave a perfectly sensible market-based explanation, it is still odd, simply because of the magnitude.

Our search for an explanation is made all the more difficult by the fact that markets are becoming ever more opaque – increasingly so given the willingness of governments to interfere in so many markets, including bonds, credit, currencies, crude etc., when they see price signals they don’t like. There are few markets they will.

The gold and silver markets at various times have been under investigation for manipulation (by banks though – similar to the Libor scandal) and I think those investigations have restarted.

Then recently we saw reports that political lobbyists were given the heads up over changes to US healthcare legislation. Not to be outdone, the US Federal Reserve itself was responsible (either through act or omission) for select market participants obtaining highly market sensitive information prior to public release. And this is just what we know of! Think of the HFT scandal. Life is tough for those not in the know, and that’s not how markets were intended to work. The simple fact is markets lack integrity now.

Anway, outside of that in forex we saw the Australian dollar fall over 50 pips to 1.0297, but the big move was on the euro which fell about 130 pips to 1.3031 following comments from Jens Wiedmann, the Bundesbank head, that recovery in Europe may take a decade.

Those comments caused a big move on stocks as well with the Dax down 2.3 per cent, the CaC off 2.4 per cent and the FTSE down 1 per cent. The comments aren’t inconsistent with other comments made from European Commission head Jose Manuel Barrosso though that the worst of the crisis is over. I think that’s right, but of course full balance sheet repair will likely take a decade or so, just like in the '90s.

Elsewhere we saw the yen little changed at 98.1 and the British pound off a big figure to 1.5240.

That’s pretty much it – not much of a move on US Treasuries, though yields a bit lower with the 10-year at 1.701 per cent, the 5-year at 0.695 per cent and the 2-year at 0.225 per cent.

So, for today, the SPI suggests a fall for our stocks in the order of 0.8 per cent. Then as for data there isn’t much. Tonight we see UK retail sales, while in the US we get initial jobless claims and the Philly Fed index.

Have a good one…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.