Markets Shift Focus From Supply to Demand Worry

Financial markets have quickly moved from worrying about things like Middle East oil supplies to whether the global economy is healthy enough to support demand for all sorts of assets.

U.S. stocks plummeted, with energy stocks leading the decline, followed by materials, industrials, and tech — all global growth plays. The dollar, always a loser in the risk trade, was a winner today, moving higher as the euro took a hit.

Take a look at copper, soy beans, crude and silver, all lower as traders move out of risky assets. Stocks are taking a beating as the dollar gains strength and buyers run to the temporarily comfortable arms of U.S. Treasurys.

It didn't take much to spark a fire across risk assets. U.S. stocks have been locked in an uncertain band and traders have been waiting for a retest of S&P 500 at 1300. Overnight, China's surprise news of a $7.3 billion trade deficit created concern that it would slow down its purchases of all sorts of things, including copper and oil.

Then Moody's downgraded Spanish sovereign debt, reminding an edgy world that Europe's weakest members have not resolved their financial problems.

"You've got the Europeans just barreling out of the market," said one trader, who was eyeing the 16.40 level XLF financial ETF. "If the banks break, we're really going down."

"People stopped paying attention to the fact that the economy is doing a little better," he said.

Energy analyst Michael Fitzpatrick said oil saw key support at 102.70, a level that managed to hold several times Thursday morning before it barreled lower.

"I think we've got to focus on Moody's downgrade of Spain. We've got a market that was a little ahead of itself. I think once again we're shaking out the recent weak longs," said Fitzpatrick, editor of Energy Overview newsletter. He said, however that WTI crude has support above $100 because of Libyan supply disruptions and concerns Middle East unrest will spread.

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