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US
We saw a strong change in sentiment for the last week of June, as markets wound up their worst quarter since the Global Financial crisis.
The Financials were again bearing the brunt of investor nervousness. Further concerns in regards to the worsening European economy has investors on edge, add to this a threat from Moody’s Investor Services to downgrade Spain’s AAA rating and investors become very nervous.
Oil was again on the agenda. BP saw no further advancements to contain the thousands of barrels flooding the Gulf of Mexico and to make matters worse, US Hurricane season is now in full swing with tropical storm Alex having an impact on crude prices. Despite this string of events, the largest impact was the faltering global economy with the threat of a double dip recession causing crude futures to slide more than 8% for the week.
Europe
The situation was equally bleak in Europe this week, with the main issue again surrounding the European financial system. Moody’s announcement of a potential credit downgrade saw the Spanish IBEX experience some of the worst falls among European markets.
The contagion spread to the UK FTSE which struggled as LME metals prices took a dive, BHP listed securities in London fell 14% in the seven days to July 1.
Copper, lead, Nickel and Zinc all experienced extensive falls, with Gold being the only metal to find support based on its defensive nature, was also sold off on Thursday as major funds liquidated their holdings in commodities.
Asia
Chinese manufacturing data was poorer than expected as we a continued slowdown of the Chinese economy. The Shanghai Composite index saw extensive losses as Chinese demand for commodities wanes and we saw the Japanese Yen reach a seven month high against the US Dollar.
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Summary
The continued uncertainty over a global economic recovery is weighing heavily on global markets. As expected, Financials, Materials and Energy stocks have worn the brunt of the recent sell-off as investors head for the sidelines. Defensive stocks held up well through the initial sell-off, although downward pressure proved too much and by Thursday, no sector was safe.
As we can see, US Markets have followed a typical wave 4 Elliott set-up as ProfitSource predicted. The bears have control of the current picture and support at this stage is still limited. Whilst risks remain high, trading opportunities still remain.
Happy Trading
Lachlan McPherson
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