The short term action in the indexes is still being dominated by what is happening with the dollar and commodities. What is noteworthy is that the other sectors like technology are diverging pretty strongly with the commodity sector. At this stage it appears that investors are not really panicking about the stock market, this damage is quite limited to just the commodity sector. In fact today we have treasury yields going up and that is a good indication that the level of fear is not high as of now.
There are a couple of factors hitting the commodity space
- Commodity exchanges have raised margin requirements on silver and there is talk of raising it on crude oil. This is forcing some traders to reduce their positions to manage their risk. These kind of issues generally are temporary, so if this is the major cause then this sell off will be short lived.
- Due to problems in Europe, the dollar has strengthened and most commodities are priced in dollars so there is an inverse correlation
- Evidence of some demand destruction in the energy sector
We also had the unemployment claims data released today which showed a drop to 434K. This is still an elevated level. This number should be below 400K for a healthy labor market.