The strength of this downtrend in equity markets is creating its own momentum. The size of recent market declines demands respect and is likely to make buyers cautious unless and until some signs of stability emerge.
With the ASX 200 index now under last year’s low, investors are wondering if things could get bad enough to take the index back to the support of the major low formed in mid-2013 around 4630.
US retail sales and industrial production data for December both disappointed, giving little reason to suggest the next Fed rate increase is imminent. US consumers remain cautious and in savings mode despite improved job security. Industrial production is struggling under the influence of weak global demand; plummeting commodity prices and a strong $US.
Concerns about the potential for a hard landing in China are one of the key drivers of the current stock market sell-off. In these circumstances, the release of China’s economic data tomorrow looms as an important market event. Given the scepticism about these figures in much of the market the risk could be to the downside with this data. Some may be disinclined to place much store in data that comes in around expectations while any downside miss could fuel concerns.
Confirmation that sanctions have been lifted against Iran now makes its export performance a key variable for markets in coming weeks. There will be further pressure on oil prices if Iran is able to add 500,000 barrels to the market in the near term as it has suggested it will.
Woolworths announcement that it will quit the Masters business will remove risk from this stock and is likely to be well received by investors. Coincidentally, Wesfarmers has at the same time assumed risk in the hardware space, confirming that it will buy UK group, Homebase.