The yen extended its rally over night and is so far the strongest major currency this week. Risk aversion and steep fall in treasury yields were two factors that drove the yen higher. DOW failed to sustain above 17000 handle and dropped -272.52 pts, or -1.6% overnight to close at 16719.39. S&P 500 dropped -29.72 pts, or -1.51% to close at 1935.1. Development in SPX is worth a note. There was some strong resistance seen from 55 days EMA. The medium term channel is broken. There was bearish divergence condition in daily MACD. These three developments point to trend reversal in the index. Today's focus will be on last week's low of 1926.03, break there will put focus on key structural support level at 1904.78.
Another development was the sharp fall in Treasury yield this week. TYX, 30 year yield, has indeed broke recent low of 3.059 to close at 3.056. It was clear that the recovery from 3.059 was limited by channel resistance earlier. And the decline fro 3.974 has just resumed. We'd likely see deeper decline through 61.8% retracement of 2.452 to 3.974 at 3.033 to 2.810 support next. Both the development in stocks and yields could drag yen crosses lower.
IMF lowered global growth forecast to 3.3% in 2014 and 3.8% in 2015, comparing to July forecast of 3.4% and 3.8% respectively. US growth is projected to be 2.2% in 2014 and 3.1% in 2015, comparing to July forecast of 1.7% and 3.0% respectively. Eurozone growth is projected to be 0.8% in 2014 and 1.3% in 2015, comparing to July forecast of 1.1% and 1.5% respectively Japan growth is projected to be 0.9% in 2014 and 0.8% in 2015, comparing to July forecast of 1.6% and 1.1% respectively. IMF noted that "in advanced economies, the legacies of the precrisis boom and the subsequent crisis, including high private and public debt, still cast a shadow on the recovery." And, "emerging markets are adjusting to rates of economic growth lower than those reached in the precrisis boom and the post crisis recovery."
In US, New York Fed President William Dudley said that the labor market still has "too much slack" and inflation rate is "too low". Thus, it's "premature" to hike rates now. Nonetheless, he said that that the consensus view for Fed to start raising interest rates by middle of next year "seems like a reasonable view". He added that "Firmer growth, higher inflation, and a more rapid tightening of the labor market could cause us to move earlier. Conversely, should economic growth disappoint, the timing of lift-off could be pushed later." FOMC minutes will be a focus today.
Elsewhere, UK BRC shop price index dropped -1..8% yoy in September. Japan current account surplus widened to JPY 0.13T in August. China HSBC services PMI dropped to 53.5 in September. Swiss unemployment, Canada housing starts will be released later today.