Global equities moderately lower, oil continues to fall, precious metals higher, ASX futures down 21 points

The falls in Brent crude below US$55 and WTI crude below US$50 have triggered heavy selling, presumably due to the number of stop loss orders that would have sat below the consolidation of oil prices that occurred from mid to late December. Today's first chart demonstrates the continued velocity of the oil sell-off - while this is arguably a good thing for manufacturers and consumers in the world's largest economies, the pace of the fall is spooky. While we're not altering our positions in long equity portfolios based on oil volatility and the potential of a European event, I would summarise the two risks that face short-term traders today as:

  1. The risk of going to cash and missing a positive European event relating to ECB stimulus measures (its next policy meeting will be on Thursday 22 January)
  2. The risk of remaining 'long' (being positioned to benefit from prices increasing) while a negative European event occurs, such as confirmation that Greece will exit the EU
These two risks are what I believe are driving flighty risk-off behaviour over the last few sessions.

The set of four charts I've included below show bond yields from Greece, Spain, Italy and Portugal. Firstly, Greek bond yields should have never been as low as they were in June-August (sub 6%), but that aside, you can see that while Greek bonds have sold off and yields have risen dramatically over the past few months, there is no contagion to some of its neighbours that were affected badly the last time there was a European debt crisis. This is not a European peripheral bond issue, this is a Greek issue. The market is obviously seeing signs that, if and when the ECB does begin to step up its asset purchase program, Greece may not be a beneficiary of it, which is why it is not enjoying the low yields of the other four referred to in this chart.

The chart below shows the strength of the US dollar (orange) and the relative weakness of the Australian dollar (black) being put on hold during the last session.

Today’s charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to get your free $100,000 demo account.

Upcoming economic announcements: AiG performance of service index (AU) out at 9:30am, German retail sales at 6pm, German employment report at 7:55pm, Eurozone CPI at 9pm, US Fed minutes out at 6am tomorrow, all Sydney time.

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