Markets Enter Correction Territory

The Dow Jones had its second greater than 1,000 point drop in one week with a percentage decline very similar to that of Monday’s at 4.2%. The index was weak throughout the session although losses accelerated into the close. The S&P 500 and Nasdaq 100 were down 3.75% and 4.2% respectively. The Dow and S&P 500 are now technically in correction territory as they have both fallen over 10% from their highs. While such a correction was expected by many people, the pace of it is somewhat alarming. Despite the weakness in stocks, bond prices actually held firm with the US 10-year bond yield currently at 2.82%. The Australian 10-year bond yield is holding slightly above that level at 2.85% and so far the US yield has failed to surpass the Australian yield although the two are very close.

Typical risk-off correlations that you often see during times of market stress were only partially in effect overnight. As would be expected, the AUD sold off and is now trading at US$0.778, its lowest level in over a month. On the other hand, gold failed to catch a strong bid and only managed to recover the losses sustained during the European session, currently trading at US$1,319 per ounce. The US dollar (traditionally a safe-haven currency) also failed to rally and was virtually flat on the session at 90.30.

Oil prices continue to slide after this week’s inventory data showed another crude build in the US. Traders appear to be particularly concerned about the rapid increases in US production which may now have surpassed Saudi Arabia’s production of over 10 million barrels per day. WTI oil is back to a 60 handle at $60.42.

Today the RBA monetary policy statement is released which will give the bank’s views on economic activity and inflation. The Bank of England decided to keep rates on hold yesterday although the commentary suggested that interest rates will need to rise in the near future, and perhaps at a faster pace than previously expected. As a result the GBP rallied by over 1% against the AUD. 

Data Releases:

-    RBA Monetary Policy Statement 11:30am AEDT

-    UK Manufacturing Production 8:30pm AEDT

To view the Rivkin economic calendar and Local Markets matrix, members can click here.

This article was written by William O'Loughlin - Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via william.oloughlin@rivkin.com.au or by phoning +612 8302 3633.

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This article contains information about foreign exchange contracts, which are considered complex financial products. Please click here to read ASIC's foreign exchange trading article before considering an investment in foreign exchange contracts. 

This article contains information about CFDs, which are considered complex financial products. Please click here to read ASIC's "Thinking of trading contracts for difference?" document before considering an investment in CFDs.
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