European markets rally in line with US, until US gives up and sells at 5am this morning - ASX futures down 47 points

It was reassuring to see strong buying on the ASX yesterday morning, which was prompted by a steady rise in US futures from 9am onward, Sydney time. The mere whiff of a turn in sentiment fuelled a confluence of buying and short-covering as the intra-day bulls trampled the bears. And to what extent? The ASX 200 September future (APU5 for Rivkin Trader clients) rose 521 points from low of 4,733 at 5:30am to a high of 5254 at 8:30pm last night. I might be mistaken, but I can't remember--even during the GFC--witnessing an upward move of that magnitude and velocity. That's an 11% swing over a 15 hour period. Phenomenal volatility, and so rare to see such an aggressive up-move in a game that so often resembles snakes and ladders (or chutes and ladders for our American readers), with falls generally far outpacing gains throughout market volatility.

As you'll see in today's first chart, US markets--which would have lent strength to European markets where major indices were up between 3-5%--remained elevated until just a few hours ago, when both the Dow and S&P 500 tanked into the close. Nonetheless, the ASX 200 futures market is a good 300 points or so higher than they were this time yesterday, so I think a sigh of relief is both warranted and well-deserved from those investors who hung on with white knuckles over the past few sessions. Volatility measures remain high and today's last chart shows the S&P 500 volatility index (VIX), illustrating that US investors are not predicting that the wild ride is over yet.

More big news came last night in the form of Chinese market stimulus - after their stock market closed (down 7.1%), the People's Bank of China immediately cut its benchmark one-year lending rate by 25 basis points to 4.5%, at the same time cutting savings rates by the same amount. The capital reserve requirement for bank lending was also cut from 18.5% to 18% and we'll find out at around 11am this morning what this might do to stabilise Chinese stock markets. But frankly, after recent volatility in Chinese stocks was first introduced back in June this year, I think Australian investors have become a little numbed as to the volatile nature of this market and at just over 3,000 points, it's looking a lot more sensible than its 5,380 2015 peak and is now trading well below its 200 day moving average, which it should be given that even with this latest sell-off it remains 33% up over the last 12 months. So let's watch and see what the Chinese politicians can do to stimulate its real economy, while not getting too bogged down in what happens with its 'listed economy,' as I believe that Australian stock market sensitivity to Chinese equity market levels has dropped significantly.

Source: Rivkin, Saxo Bank

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This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via or by phoning +612 8302 3600.

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