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Equities Sell Off as Consumer Confidence Plunges

The rout of the global equities market commenced last night with the Shanghai Composite Index reversing early gains to close down 4.3%, at 2,427.05, the lowest close since April 2009.  Spreading quickly, like an air borne disease, the bearish bug took markets lower.

European markets were already down 2 to 3%, and the US Dow futures was trading down a little over 100 when the shocker from the Consumer Board Consumer Confidence was released.  Estimated to be 62.8, the number came in almost 10 points lower at 52.9%.  Increasing uncertainty about the future state of the economy and the labor markets has the consumer worried.  Quickly US equities sold off even further, taking the Dow under 9900.

Fear of a global economic slow down has risk adverse investors scrambling for cover.  US Treasuries remain at the top of this list for this group.  The yield on the two year note dropped to .62%. and the yield on the 10 year note is now a little under 3.0%. 

Currency specs have been casting their vote for the yen which has surged to the highest level in eight years versus the euro, and it has traded at a seven week high versus the USD.  The yen advanced despite last night's reports that household spending was down 0.7% more than the positive 0.4% expected, the unemployment rate was up to 5.2% and there was a preliminary report showing industrial production was lower.  It looks like the current dour economic news from Japan is far less important than the historical safe have status of the yen.

The yen has picked up some down side momentum after taking out the support in the 90.50 area. Now under 89. and attracting buying from the safety seeking specs, this price is bound to be a cause of concern for the exporters.  The strength is also making the small specs in the yen futures suffer, for they were net short the yen by almost 10,000 contracts in the last report.  Should this market have a climax in yen buying, causing it to spike down near the 87.00 handle, let us try the buy side.  The market has a history of spike lows before reversing for a come back rally.

Disclosure: Long FXA