Spanish Bond Auction Reverses Positive Sentiment; S&P 500 Fails Again at 1340

By Richard Cox
Richard Cox
Richard Cox
July 24, 2014 Updated: April 23, 2016

Equity markets in Asia are lower with the MSCI stock index falling from its highest levels in two weeks after a disappointing bond auction in Spain showed some indication that markets are questioning the validity of this weekend’s bailout agreement with the Eurozone finance ministry.

The MSCi dropped by 0.9 percent to trade just above the 110 level, with 80% of the stocks in the index trading lower on the day. Market speculation that the debt situation in Eurozone is weighing on growth prospects in China and the US has pushed the MSCI lower by 12 percent from the highs posted at the end of February. The daily losses are similar to those seen in the Nikkei 225 and in the South Korean Kospi index. In Australia, the S&P/ASX 200 was the bright point, trading higher by 0.4 percent.

The bond auction in Spain was the main story, as this gives markets some indication of the level of confidence that is seen in the Eurozone’s debt relief programs. Over the weekend, Spain requested loans amounting to 100 billion Euros as funding to recapitalize commercial banks in the country. Bond yields in Spain rose to their highest levels in 4 months, which shows that markets are still pricing in further debt contagion effects.

The next major event risk for the Eurozone is the June 17th elections in Greece, and the uncertainty relative to the election results is creating lower trading volumes as many traders wait to establish new positions. Polling numbers are showing that there is no clear leader, so there is an increasing possibility that Greece will fail to form a majority government that is committed to Eurozone proposed austerity measures. If this does wind up being the case, we will start to see more analyst commentary suggesting that Greece will be forced to leave the European Monetary Union, so we are likely to see increases in volatility as June 17th approaches.

Ahead today, we will see comments from the Bank of Japan (likely to center on the strength of the Yen and possible intervention measures). This will be followed by CPI data in Sweden and Industrial Production figures out of the UK. With macro releases relatively light, market activity is likely to be governed by news headline and order flows, with negative sentiment re-asserting itself after the recent rallies in equity markets and the Euro.

Technical Analysis:

Epoch Times Photo

The AUD/USD is trading lower on the shorter term time frames but we are seeing some support being created by the 200 EMA on the 4H charts. The next level to the downside can be seen at 0.9820, which is also very close to Fibonacci retracement levels measured from the latest rally, so this stalling is not entirely surprising. A break of 0.9820 will accelerate losses and signal that a top is now in place at the double top just below parity. Momentum is still positive but is waning in strength, so wait for a clear break before entering into new sell positions.

Epoch Times Photo

The S&P 500 is now forming a very clear range that is being defined by 1340 to the topside and 1260 to the downside. Currently price levels are also running into the 100 and 200 EMAs on the dailies. Indicator readings are showing negative momentum, so look to sell strength if given the opportunity.