Apple triggers further selling

By David Morrison  |  03/01/2019 15:36

Investors were caught on the hop after Apple warned on future revenues. The stock fell sharply overnight while FX markets were in turmoil as the Japanese yen soared

Investors were taken by surprise overnight after Apple released a sales warning. This is only the second time that Apple has done this in all the years it has existed as a listed company. The stock slumped 9% in pre-market trade, compounding investor misery as the shares fell to their lowest point since July 2017. Apple has now lost 37% of its value since hitting a record high in October last year. Last night’s announcement followed on from November’s earnings release when the company said that it would no longer report unit sales for the iPhone, iPad or Mac. This is a concern for investors as it will make future earnings reports less transparent, suggesting that the company has something to hide. Apple blamed a downturn in iPhone sales in China for a drop in revenues. The news fueled fears that a more widespread global economic slowdown may be in progress, something that’s supported by inversion in the yield curve for US Treasuries at the short end. Currently, the yield on 12-month bills is now higher than anything on the curve out to eight years. The current curve suggests that the US Federal Reserve will keep rates little-changed for the rest of the year and begin cutting in 2020, which investors believe will be in response to a downturn in global economic activity. This contradicts last month’s FOMC Summary of Economic Projections where committee members forecast 50 basis points of rate hikes over the coming year.

FX ‘flash crash’

Last night also saw dramatic moves in currency markets. Crosses against the Japanese yen were particularly badly affected, especially against the Australian dollar and Turkish lira as the yen soared. Even the USDJPY was affected as the pair slumped below 105.00 to hit its lowest level since March 2017. Some traders put the moves in FX down to Apple’s sell-off as algorithmic trading kicked in and related hedges were unwound – a situation exacerbated by thin overnight markets and the Japanese holiday. Bear in mind that investors rush to buy yen in times of risk aversion, either buying back borrowed currency or looking to the yen as a ‘safe haven’.

Wednesday’s bounce-back to repeat?

Wednesday’s trade saw US and European stock indices make back heavy initial losses to end the day little-changed. Time will tell if we get a repeat in today’s session or whether traders are now wary of buying the dip. By mid-afternoon European and US stock indices had bounced off their overnight lows. However, they fell back following the release of the US ISM Manufacturing PMI which came in at 54.1 – lower than the 57.7 expected and well below the previous reading of 59.3. Looking at the S&P 500, there appears to be a tug of war going on between bulls and bears around 2,500. The bulls are desperate to push the index above here on a closing basis as a staging post for a drive back to retest resistance around 2,600. Meanwhile, the bears have their sights on the Boxing Day low just above 2,300 – a level which corresponds to the 161.8% Fibonacci extension of the April-October 2017 rally.

Non-Farms in focus

Tomorrow sees the release of US Non-Farm Payrolls for December. The consensus expectation is for a payroll increase of 178,000 which would be a decent improvement on November’s gain of 155,000. Some analysts began to raise their forecasts following an exceptionally strong ADP payroll reading earlier today. December ADP came in at +271,000, way above the 179,000 anticipated. It’s worth bearing in mind that the ADP is rarely a good predictor of the official Non-Farm number. However, sometimes a big surprise in either direction in the ADP is reflected in Non-Farms. Having said that, it’s not clear just how equity markets would respond to a strong upside surprise now as this would simply reinforce the view that the Federal Reserve will remain hawkish. Meanwhile, the Unemployment Rate is forecast to hold at 3.7% for December, unchanged from the previous month. Average Hourly Earnings are expected to tick up to +0.3% month-on-month from +0.2% in November. Yet again, any signs of stronger-than-expected wage pressures will only strengthen the argument that the Fed will continue to tighten monetary policy in 2019. Later in the day Fed Chairman Jerome Powell will participate in a panel discussion which could well lead to further market volatility to round off a tumultous holiday-shortened trading week.

Any information, analysis, opinion, commentary or research-based material on this page is for information purposes only and is not, in any circumstances, intended to be an offer of, or solicitation for, a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any person acting on it does so entirely at their own risk and GKFX accepts no responsibility for any adverse trading decisions. You should seek independent advice if you do not understand the associated risks.