FOREX, COMMODITIES & STOCKS OUTLOOK 2nd August 2010

2 08 2010

Dealer Room Market Commentary

Overview

U.S. stocks recovered lost ground but closed little changed on Friday, Wall Street wrapped up its best month in a year after the earnings season rounded the final turn with a group of strong results that offs et the impact of poor economic data.

Gold regained strength on Monday, Asian stocks gained while the dollar hit a three-month low against a basket of currencies due to concerns the U.S. economy’s recovery was losing momentum following the release of poor economic growth data

Gold futures for December delivery rose $1.5 to $1,185.4 an ounce after settling 1.1 percent higher. Gold had risen after data showed U.S. economic growth slowed in the second quarter, raising concerns about the recovery in the rest of 2010.

Currencies 

EURUSD:

EUR/USD: Consolidates Below 1.3100 overnight

The EUR/USD has traded in a tight 1.3054/1.3088 range today in Asia. The pairing was buoyed by EUR/JPY demand this morning, but the Asian bourses are coming off their high’s, the Nikkei is up just 0.19% and has been offered since the release of the HSBC China PMI, which came in at 49.4, just below the pivotal 50 level though this is consistently slightly lower than the official data released on Sunday at 51.1. There are stops reported above 1.3110, but the significant resistance comes in at 1.3120/25, being the 38.2% retracement of this year’s fall and a close above this level targets 1.3500 longer term, which is the 50% retracement and an area of major option activity. The first level of significant support comes in around 1.2950/60, being the recent daily range low and the 10 day moving average; a close below here tonight would leave a short term top in place at 1.3100. Further tight range trading is expected into the European open, with EU and German Manufacturing PMI as the initial event risks, due at 08:00 and 07:55 respectively. The EUR/USD trades 1.3078/81

 

GBPUSD

GBP/USD: Stops Triggered Above 1.5725 After Bullish Outside Day

 The GBP/USD has traded to 1.5735 in early Asia to trigger stops above Friday’s 1.5723 high – after closing the US session on Friday at 1.5685. The GBP/USD had a bullish outside day reversal higher on Friday and the next level of resistance is found at the Feb 17 high at 1.5816. The GBP/USD trades 1.5723/28

USDJPY

USD/JPY: Again Capped Ahead Of 87.00 As Jaw-Boning Effect Ebbs – Early action this morning saw USD/JPY bounce, trading up from an early low of 86.20 to as high as 86.72. Jaw-boning from the Japanese FinMin helped as did some bargain-hunting by Japanese importers and investors into the Tokyo fix. As the effects of the jaw-boning ebbed, so too did USD/JPY with the pair back down to the 86.58/60 seen currently. Attempts to break up above 87.00 have failed with the 87.70 area also a retracement high seen in late New York trading Friday following the plunge earlier to 85.95. Some trader stops are seen on a break-back above 87.00 and especially the Ichimoku tenkan line at 87.02 but such a move does not look to be likely currently. More stops to the downside are seen below 85.95, of course mixed in with more Japanese and other bids. 85.00 is seen to be a level containing an exceptional amount of optionality, and this looks to be the current focus for specs

 

Commodities

Oil
 Oil rose towards 12-week highs above $79 on Monday, driven by investor appetite for commodities and energy risk, with macroeconomic indicators in top consumers the United States and China showing slower but sustained growth.
   U.S. September crude rose as much as 40 cents to $79.35 a barrel and was up 19 cents at $79.14 by 0415 GMT, having reached a 12-week high of $79.69 last week and climbed 4.35 percent last month. ICE Brent  gained 13 cents to $78.31.
   Money managers increased bets that prices would rise, or the so-called net long crude oil positions, to the highest level since May on the New York Mercantile Exchange in the week to July 27, the Commodity Futures Trading Commission said on Friday, when wheat and the CRB surged to cap their biggest monthly gains since 1959 and May 2009 respectively.
   “Long positions are starting to creep back into the market,” said Ben Westmore, a commodities analyst at National Australia Bank in Melbourne, adding, “It’s a gradual process of regaining confidence that there is not going to be a default soon,” in a reference to the euro zone’s debt crisis.
   “The market is aware of the fact that it’s going to be a pretty slow recovery in the U.S. and the euro zone, so although oil demand will grow over the next 12 months or so, it’s going to be a slow, gradual process,” Westmore said.
    
   U.S. crude inventories posted their biggest weekly increase since 2008 in the week to July 23 as imports surged, while gasoline stockpiles climbed for a fifth consecutive week and supplies of distillates including diesel for a ninth.
   “The oil balance is not going to tighten too much,” Westmore said.
   BP Plc  could start plugging its broken deepsea oil well in the Gulf of Mexico on Monday night, more than three months after its rupture led to the worst offshore oil spill in U.S. history

Gold
Gold steadied on Monday after gaining 1 percent in the previous session on poor U.S. economic growth data, with a weaker dollar likely to ignite fresh buying.

Spot gold added $1.80 to $1,183.30 by 0322 GMT after hitting a low of $1,179.20 an ounce. Despite the gain, bullion was still around 6 percent below a lifetime high of $1,264.90 struck in June.

 

Markets
US Markets

 U.S. stocks recovered lost ground but closed little changed on Friday, Wall Street wrapped up its best month in a year after the earnings season rounded the final turn with a group of strong results that offs et the impact of poor economic data.

 U.S. stocks closed little changed on Friday, but Wall Street wrapped up its best month in a year after the earnings season rounded the final turn with a group of strong results that offset the impact of poor economic data.While the major indexes each posted 7 percent gains for the month, it came during low volume and followed a combined decline of nearly 14 percent for May and June.

The conflict between strong earnings and lackluster economic news has held stocks in a tight range throughout July. Prior to Friday’s open, second-quarter GDP data disappointed investors, even though shares came back later in the session.A lack of clear direction has led to more technical trading, with the S&P 500 finding support around 1,100 while struggling to move above its 200-day moving average around 1,115. A sustained move above that level would be bullish for investors.

“Speculators are net short the S&P 500, according to Commodity Futures Trading Commission data but trimmed their short portions from a week earlier.

For July the Dow rose 7.1 percent, the S&P 500 gained 6.9 percent and the Nasdaq added 6.9 percent.

 

European Markets

 European shares were expected to open higher on Monday, tracking gains in Asia and a late recovery on Wall Street on Friday, with focus likely to remain on company earnings as the European corporate reporting season gets into full swing.

Britain’s FTSE 100 .FTSE was expected to open up to 48 points higher, or up 0.9 percent; Germany‘s DAX was seen opening up as much as 53 points or 0.9 percent and France’s CAC-40 .FCHI was seen 33 points higher, or up 0.9 percent, according to financial spreadbetters.

BNP Paribas (BNPP.PA), France’s biggest listed bank, posted higher-than-expected second-quarter net profit thanks to lower loan provisions and strong retail banking, despite volatile financial market conditions.

Later in the session, heavyweight HSBC (HSBA.L) is expected to release first-half results.

HSBC’s China Purchasing Managers’ Index fell below the boom-bust line of 50 in July for the first time since the depths of the global downturn in March 2009, but HSBC said the month-on-month contraction is still consistent with annual growth in Chinese industrial production of 11-13 percent.

Asian equities posted strong gains, shrugging off the data.

European stocks recovered from a sharp fall to close only slightly lower on Friday, and to notch up the first monthly gain since March
Asian Markets: Asia shares up 0.4 pct, euro extends rally after bank tests
Nikkei Closes TSE AM Session Up 118.49 Points, 1.24% At 9655.79

  The Nikkei gapped up to open the day and week at 9574.64 and, from an early low of 9537.30, rallied further to 9676.41. It since fell off hard, trading down to 9548.86 in the afternoon before bouncing a bit into the TSE close. Other Asian bourses also looked better bid early before falling off later. China official PMI at 51.2 and very good South Korea trade data helped. Helping to push these markets lower later was a weak China HSBC version of the PMI at 49.4, below the key 50 break-bust level

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Daily Outlook Cheat Sheet 12/10: USD Rally Stalls Despite Sovereign Debt Fears Stocks, Risk Sentiment Mixed

10 12 2009

Stocks: Prior Day: Asia, Europe down, US down/flat, Asia down, Europe flat.

– FX: mixed/lower equities, bias to safety currencies [JPY, USD, CHF in order of
safety appeal] vs. risk currencies [AUD, NZD, CAD, EUR, GBP in order of risk
appetite appeal], USD RALLY HALTING IN EARLY Thursday TRADE, MINOR REVERSALS AT THIS TIME in favor of risk assets/currencies.

– Main events: Thurs: JPY: Core Machinery orders m/m, AUD MI Inflation Expectations, Employment Change & Rate+, CHF Libor Rate, SNB Monetary Policy, Press Confr., GBP: Asset Purchase Facility, Official Bank Rate, MPC St., CAD: Trade Bal, USD: Trade Bal.

Big Theme: New Sovereign Debt Concerns from Spain, Dubai Continue But Risk Asset Pullback is reversing, TRADERS SHOULD HAVE TRADING PLANS READY FOR MOVES IN EITHER DIRECTION, NUMEROUS GOOD REASONS TO TRADE SEE RECOMMENDED TRADES BELOW

STOCKS

US: Frequent swings by the U.S. dollar caused stocks to spend most of the session chopping along in a relatively narrow range, but some late support helped the major equity averages make modest gains. Despite a growing list of sovereign debt downgrades that now includes Spain and is likely to grow further still. The action hasn’t provided any clarity to the market’s near-term direction.

Asia: Japan’s Nikkei average fell 1.3 % Wednesday and 1.4% Thursday as debt problems in Greece, Dubai, and now Spain, along with recent Yen strength hurt investor confidence,

Europe: European shares briefly turned negative in morning trade on Thursday as financial stocks gave up early gains ahead of the Bank of England’s interest rate decision later in the session, as worries about European bank exposure to Greece, Dubai, and Spain weigh on markets.

ASIA- DOWN N225I -1.42% HS -0.19% SSEC +0.45% FTSTI +0.17% AORD -0.72 %
EUROPE DOWN FTSE -0.34% DAX -0.57% CAC -0.54%%  
US- UP S&P +0.37% DJIA +0.50% NASDAQ +0.49%    
THIS MORNING N225I -1.01% HS -1.53% SSEC -3.35% FTSTI -0.64% AORD -0.64 %
  FTSE -0.08% DAX -0.01% CAC +0.41%  
           

Oil: Oil prices were a primary drag on the CRB. Contracts for crude closed pit trade with oil priced 2.6% lower at $70.70 per barrel, near fresh two-month lows. The move came even though weekly inventory data showed a surprise draw of 3.82 million barrels. Recovering slightly in early Thursday trade.

Gold: Stabilizing Wednesday into early Thursday trade around $1130, down from a high of $1220 just 6 sessions ago.

CURRENCIES: Flight to safety reversing late Wednesday into early Thursday trade as the USD, JPY, CHF lose ground against higher risk currencies, thus putting most currencies in a tight range over the past day vs. the USD.

USD: It finished with a 0.3% loss after holding gains through the end of Asian and European trade Wednesday against all FX except for the JPY as sovereign credit fears drive demand for safe-haven currencies as carry trades unwind.

Wednesday: Though the Dollar Index looked like it got a lift from an early flight to safety, it was unable to trade with any clear direction. Each of its attempts to pare losses was met with resistance at the neutral line.

EUR: Down again at the end of European trade Wednesday trade vs. the USD and Yen, in the overall flight to safety and USD, JPY strength. Recent negative data on German production adds to the EUR’s continuing plunge. Gaining vs. the GBP, steady vs. AUD

JPY: Dropping back against all higher risk FX including the USD in early Thursday trade

.

GBP: Up slightly vs. the USD Wednesday, giving back that gain in Wednesday and early Thursday trade

AUD: Gaining ground against safe haven FX. The Australian dollar jumped about half a U.S. cent after Australian employment rose by 31,200 in November, beating forecasts for a rise of 5,000. The Australian dollar rose to $0.9163 from about $0.9105 just before the data, and was up 0.9 percent on the day.

NZD: Continuing its move higher into early Thursday trade as the Kiwi settles around $0.7220, having hit a high of $0.7235, as the Reserve Bank of New Zealand says it could start raising rates from middle of 2010 and also brings forward its forecast for a rise in the 90 day bank bill price

CAD: Recovering much of Tuesday’s losses Wednesday and Thursday despite oil’s continued slide as the USD rally halts, continuing higher against the USD early Thursday. In ascending triangle pattern that suggests a break coming to one side or the other.

CHF: Overall up vs. all majors except for the JPY, USD, steady against EUR as safe-haven currencies dominate but USD rally moderates.

CONCLUSIONS: S&P 500, other remains below 1100 resistance, but coming off lows as USD rally loses steam into the Europe close and continuing early Thursday. It attempts to rally despite dropping slightly in early Wednesday trade. Liquidity and low rates support stocks and other risk assets as cash seeks a parking spot, but questions on valuations and still poor fundamentals weigh against stocks, and have many believing the rally is in trouble and that a bearish double or triple top is forming. Dubai again reminds markets of real risk of sovereign debt default from Greece, Spain and others. See below for specific opportunities with the S&P 500, CRUDE, GOLD, EURUSD, NZDUSD, and AUDUSD, & GBPUSD.

Trading Opportunities: Near term has favored safe-haven assets. Friday’s NFP supports USD, as does its safe-haven status. Stocks may still be vulnerable to a pullback at this 1100 resistance level for the S&P 500 due to valuation concerns, yearend selling, and to the extent that traders believe a stronger USD drives stocks down (usually wrong. Always use sell stop orders. See recommended trades below

Specific Trades:

S&P 500 & Risk Assets In General: The big question this week is how world risk asset markets (of which the S&P 500 is the best single picture) digest Friday’s US jobs reports, the renewed sovereign debt concerns and the concomitant rise in the USD. The S&P 500

Has again fallen below 1100 for the past 3 days, and is at strong support at 1094, where multiple supports converge: the 23.6% Fib retracement, lower rising channel line, and 20 day MA. Doji star candle yesterday suggests overall market indecision. Thus we believe traders should be wary of opening new positions on this index and on all other assets until we get a decisive move above or below 1100. We may have gotten that on Friday Dec 4, but awaiting confirmation. As noted above, it’s a struggle between liquidity pushing stocks up vs. concerns over the underlying fundamentals and high valuations that suggest selling. Add to that brew the unresolved debt issues of Dubai, Greece, and now Spain, with even the US and UK getting a warning from Moodys. Because the S&P 500 is so representative of overall risk sentiment, and thus the “One Chart to Rule Them All”, this indecisive picture suggest traders should make long or short moves when the S&P hits support levels at around the1091 (23.6% Fib retracement +20 day MA + some price support from mid-October + rising trend line) and at 1080 (38.2% Fib retracement + rising channel line + lower Bollinger Band + 50 day MA) or a decisive break over 1100. Given the fear reflected in the S&P, traders should be very cautious opening long positions in ANY risk assets at this time, and employ tight trailing stops or monitor positions closely on existing open long risk asset positions. They should also have some short positions planned, complete with initial and confirming indicators, and planned entry/ exit points.

S&P 500 Daily Chart as of Dec 1 08:47 GMT (01 Dec 10) AVAFX CHART

GOLD: After recovering from the low $1130s to $1160s in just a day after Bernanke remarks Monday dampened US recovery hopes (and thus inflation prospects) fell hard again Wednesday as its anti-dollar role cuts against it in the overall flight to safety into the USD. The decisive crash through support at $1148 (tested 3 times in the past 3 sessions at the 38.2% Fibonacci retracement has, as we predicted yesterday, brought down to the next support around the 50% Fib retracement at $1125. Given the break in the USD rally, gold could well bounce here, given the additional support of the lower Bollinger Band; if the USD rally resumes then the next stop appears to be around $1103, where there’s a convergence of 61.8% Fibonacci retracement, then the 76.4% retracement at around 1080, which is reinforced by the rising trend line.

At this point, gold is moving opposite the dollar, so watch the EURUSD and S&P 500 for indications of gold’s near term moves

Gold Daily Chart (03 Dec 10) AVAFX CHART

As we noted last week, gold’s meteoric rise meant it had no time to build up any nearby support levels, which made it ripe for shorting should anything interfere with the forces pushing it up. Friday’s NFP did that by suggesting a bottoming in the USD, and gold was very much an anti-USD play that many believed could be overbought in the near term despite its long term bullish potential. Predictably, the fall was hard and fast, allowing only alert traders to catch it thus far. 1150 (also the 38.2% Fibonacci retracement level) has proven to be some support 3 times in the past 2 weeks. Continuing down as of this writing. No real support besides the above Fibonacci retracements, (which thus far tend to provide at least some temporary pause in down moves) until about 1080, where both a Fib and upward trend line converge, though we suspect the $1000 level (also has a 61.8% Fib retracement level) should provide some support.

Gold is likely to move this week opposite the USD. If the USD moves higher, gold could test the above support levels, though we repeat the below argument that gold’s rally has long term legs. The trick will be to identify the next good entry point.

The Long Term Bullish Gold Argument: Makes sense as long as the USD Doesn’t Make a Sustained Move Higher.

As noted in our Global Markets Outlook 11/23-11/27, the belief that there are large buyers like central banks seeking to buy gold may have caused a new fundamental upward shift in price based on this perceived demand. While gold was not immune from the Dubai induced panic late last week, it has recovered those losses already, and is close to recovering its steep upward trend line. This relative strength suggest that if markets truly calm down, gold could resume its climb, even if global equity markets remain pressured by the weight of the extended rally, valuation concerns, and year-end tax selling.

There’s a growing belief in a new fundamental factor — that underlying demand for gold has increased due to central bank buying. After the Reserve Bank of India, the Bank of Mauritius bought 2 metric tons of gold from the IMF at market price on November 11. Compared with India’s 200 metric tons, Mauritius’ purchase was insignificant. However, same as the deal with India, the implications radiate far beyond the size of the deal itself.

Earlier this year, the IMF announced its plan to sell a total of 403.3 metric tons of gold to bolster its finances. The news weighed on market sentiment as investors worried about at how much and to whom the gold would be sold. Now, more than half of the planned amount has been sold to official sectors at market prices, sentiment appears to have shifted from concern over overhanging supply to disappearing supply as large exporter central banks and sovereign wealth funds seek to convert depreciating dollar holdings into gold. Right or wrong, that is the sentiment at this time, and it’s been strong enough to send gold soaring while crude and stocks have been stalling out. Impressive relative strength that has won many believers and convinced markets that any pullback will not be pronounced or long.

Consider:

• In April, China, the biggest gold producer in the world, increased reserves by +76% to 154 metric tons since 2003. The market anticipates China will be another big buyer of IMF’s gold.

• Since the beginning of 2009, gold price has rallied almost +30%. Also, after breaching 2008-high at 1033.9, the yellow metal’s rise has accelerated, jumping more than 100 dollars in a month. The long-term uptrend is not likely to end soon.

• Apart from government buying, new private gold funds should give a further boost to robust investment demands. John Paulson announced his plan to launch a new gold fund next year with as much as $250M of his money. Large gold ETFs or funds usually have holdings that are comparable to central banks. For instance, SPDR Gold Shares, the world’s largest gold ETF, is the world’s 5th largest bullion owner just below France and above China.

In short, it’s not just increasing gold demand, but demand from big buyers.

In coming weeks, gold price should continue to be very much directed by USD’s movement. However, the inverse relationship between gold and the dollar should not be taken for granted. For instance, in the 90s, the yellow metal’s supply was so abundant that its price plummeted. In 2005, gold price surged due to tightness in the market. Therefore, some analysts hold that gold price may continue to rise given the reduction in gold production and increase in central bank demand, despite a possible rebound in USD early next year. Famed NYU Economics Professor Nuriel Roubini, credited for calling the current crisis years ago, believes the run in gold is an unsustainable bubble, while famed commodity trader Jim Rodgers holds gold is going much higher. As long as the central bank/sovereign wealth/momentum story holds up, Rogers looks correct.

Crude Oil: As another anti-dollar play continues crashing through supports despite the Wednesday-early Thursday respite in the USD rally and risk asset decline. Crashed $74-$72 support, not seen since mid-October, and which had the additional support of the rising trend line since July. As of early Thursday is just below $71, next likely support around the 76.4% Fib retracement at just below $70. Attempting to stabilize near $71 around there in early Thursday trade.

NB: Crude has been among the weaker risk assets over the past month despite the USD’s weakness. A crude peaked week before stocks did, and has been behaving relatively weaker than stocks. For example, yesterday’s action showed that stocks were still able to retain some of their gains when momentum reversed, but crude could not, and closed lower. Not surprising, since crude tends to exaggerate the S&P 500’s trends for better and for worse. Range bound for the near term, will likely follow stocks higher to its upper range near $82 if stocks can rally, but poor fundamentals and an extended rally for both oil and the S&P 500 that it tracks suggest more downside risk at this time. USD strength has clearly exacerbated this trend, as has the stalling out of the S&P 500 and other risk assets at current resistance levels.

Certainly seems unwise to consider new longs until oil stabilizes, likely around the $73-$60 range, if not lower. An additional outcome of the Dubai crisis may be increased production as the UAE may need to produce more oil in order if it decides to fund a bailout or related assistance to stabilize the Dubai situation. Watch the S&P 500 to lead oil.

WTI Crude Oil Daily Chart (05 Dec 10) AVAFX CHART

EURUSD: As the prime counterpart of the USD, is crashing through support levels as Spain’s downgrade now adds to sovereign debt worries. Despite better than expected US oil inventory drawdown AND the USD rally losing traction late Wednesday into early Thursday trade, oil is still continuing down. However with key 1.4800 support smashed along with the next support at 1.4750 too, oil’s downward momentum is not so easily stopped. As of early Thursday the 76.4% Fib retracement level is holding, though crude is still drifting down. By itself that’s not so surprising, because oil often exaggerates risk appetite. Watch the S&P for overall risk appetite, and the EURUSD for a quick gauge of the USD to judge if oil is ready to stabilize.

EURUSD DAILY CHART (06 Dec 10)

As noted in our Global Outlook for 11/30-12/04:

NZDUSD: As suggested yesterday, strong support around 0.7100, made a good entry point for those playing the long side, with the halt in the USD rally. As of early Thursday, it is continuing to move up as the USD consolidates, similar to virtually every other currency vs. the USD., Watch the S&P 500 and EURUSD to gauge risk appetite and USD strength. Much will depend on whether more bad sovereign debt news comes out.

NZDUSD Daily Chart (07 Dec 10)

USDCAD

Upper line of the declining channel resistance broke Wednesday as part of the USD rally and drop in oil and stocks, despite good economic news from Canada. Keeping roughly to its overall downtrend line as the USD rally halts.

08 Dec. 10

OTHER HEADLINES

AP

.

Bloomberg.com

Yen, Dollar Fall as Aussie, Kiwi Rise on Jobs, Rates; Asian Stocks Decline

Bank of England May Stick to Bond Plan as British Economy Exits Recession

Wall Street Bankers Lose to Congressmen Among Americans Furious Over Pay

Emaar Rises Most Since May After Merger With Dubai Holding Units Abandoned

LSE Challenging NYSE With Plan to Offer Futures on FTSE 100 Index in 2010

Foreclosure Filings in U.S. to Hit Record for Second Year With 3.9 Million

Gundlach Turmoil May Delay Societe Generale’s Plans for TCW Spinoff or IPO

Americans Want Government to Spend for Jobs, Send Bill to Rich, Poll Shows

Brown Takes Aim at Bonuses, Delays Budget Cuts Until After 2010 U.K. Vote

(Seekingalpha.com)

10 Reasons the Equity Rally Is Over

Absurd: Japan’s Growth Revised Down by 3.5%

Contrarianism: The New Consensus

‘Government Is Out of Bullets’ – Meredith Whitney

4 Developments That Could Send UNG Lower

The Destruction of the Dollar: It’s Nearly Inevitable

As the Dollar Rises and Gold Falls, Should We Get Ready for Fed Rate Hikes?

Bernanke Is Not the Problem

Positive Financial Innovation: Small Business Equity Investing

Listen to the Fuss About Bonds

Bernanke Is Not the Problem

Why Did Housing Go into a Bubble?

The Costs of Not Fixing a Broken Financial System

Apple’s AT&T Deal: Setting the Record Straight

Seven Dividend Stocks to Take the Emotion Out of Investing

Currencies on the Move

Wednesday FX View: Closing Ranks on the Dollar

More Struggles for the Yen

Majors Advance, Yen Falls After Bank of Japan Meeting

Australia Central Bank Has It Right

DISCLOSURE AND DISCLAIMER: OPINIONS EXPRESSED ARE NOT NECESSARILY THOSE OF AVAFX, AUTHOR HAS NO POSITIONS IN ABOVE INSTRUMENTS.





GLOBAL OUTLOOK Cheat Sheet 11/10: Resilient Risk Appetite Steady After US Jobs Disappointment

10 11 2009

Stocks: Prior Day: Asia up, Europe up, US Up, this morning Asia, Europe up

– FX: Higher equities Friday, bias against safety currencies [JPY, USD, CHF in order of safety appeal] in favor of risk currencies [AUD, NZD, CAD, EUR, GBP in order of risk appetite appeal], USD gains against all majors except for JPY,

– Main events today: EUR: German ZEW sentiment NZD: RBNZ Financial stability report

Big Theme: Rising risk appetite –or range trading until next major news? Rising thus far this week-See Conclusions below for trading opportunities. TRADERS SHOULD HAVE TRADING PLANS READY FOR MOVES IN EITHER DIRECTION given the lack of major news and extended rally

STOCKS

US: Market participants responded to a sharp drop by the U.S. dollar with a broad-based buying effort that helped stocks make heady gains and finish at session highs. In fact, the Dow Jones Industrial Average logged its best closing level in 52 weeks.

News that members of the G-20 and Treasury Secretary Geithner maintain the view that economic stimulus should not yet be withdrawn led to heavy selling against the U.S. dollar and drove the Dollar Index back to 2009 lows. It spent the entire session trading with a loss of roughly 1.0%.

Asia: Up Monday, still up Tuesday but paring gains as risk assets pull back on Fitch downgrade of UK

Europe: Up Monday, pulling back Tuesday along with other risk assets, especially hit by Fitch downgrade of UK

GLOBAL

MARKETS Yesterday

ASIA- UP N225I +0.20% HS +1.73 % SSEC +0.36 FTSTI +0.88% AORD +1.78 %
EUROPE UP FTSE +2.14% DAX +2.40% CAC +2.11%
US- UP/FLAT S&P +2.22% DJIA +2.03% NASDAQ +1.97%
THIS MORNING
ASIA CLOSING UP
N225I +0.63% HS +0.27 % SSEC +0.10 FTSTI +0.29% AORD +1.23 %
EUROPE: OPEN UP
FTSE +0.041% DAX +0.07% CAC +0.21%

Oil: Meanwhile, buying in crude futures drove oil prices above $80 per barrel, but some momentum was lost so that contracts closed with oil priced at $79.43 per barrel, up 2.6%.

Gold: Prices hit a new all time high of $1111.70 per ounce before pulling back a bit to settle pit trade with a 0.5% gain at $1101.40 per ounce. Pulling back into Tuesday trade.

CURRENCIES: The U.S. dollar was under renewed selling pressure on Tuesday while the euro and higher-yielding currencies revisited recent highs as investors piled on to leveraged carry trades. Expectations that U.S. interest rates are likely to stay near zero are encouraging investors to use it as funding for carry trades in higher yielding assets. NB: Risk assets pulling back slightly Tuesday morning in general.

A Group of 20 statement at the weekend that the extraordinary stimulus would stay in place until a global recovery was well established suggested easy money would continue to chase riskier assets like stocks, commodities and growth-linked currencies like the Australian and New Zealand dollars.

USD:The U.S. dollar was under renewed selling pressure on Tuesday while the euro and higher-yielding currencies revisited recent highs as investors piled on to leveraged carry trades

EUR: the euro higher against the USD and lower yielding safe haven JPY, lower against higher yielders

JPY – Losing ground against most other currencies as part of the overall move into riskier, higher yielding assets

GBP – Down hard on news of Fitch downgrade of UK

AUD: Gaining against lower yielding currencies as part of the continuing risk appetite driven move to higher yielding currencies.

NZD: Gaining against lower yielding currencies as part of the continuing risk appetite driven move to higher yielding currencies

CAD: Steadily gaining against the USD following oil, stocks higher, despite oil’s choppy action.

CHF: Losing ground against most other currencies as part of the overall move into riskier, higher yielding.

CONCLUSIONS: Surprisingly resilient optimism despite high valuations and a negative US employment report. For now, risk assets steady or rising. Traders should consider going with the current trend but be ready for pullbacks. See the full Daily analysis for specific opportunities with CRUDE, GOLD, EURUSD, NZDUSD, AUDUSD, GBP/USD[coming in hard Tuesday morning on Fitch downgrade of UK] Trading Opportunities: Near term has favored risk currencies, shorting safe-haven assets. Today’s news is quiet, indeed, the week is fairly quiet, suggesting range trading. Given that markets remain very high despite mixed earnings and negative US jobs reports, still awaiting a pullback. Thus: 1. be prepared to play a pullback in risk assets and get ready to sell stock indexes, commodities, and risk currencies, buying USD, JPY. 2. Trade the near term horizontal trading ranges that should hold until major news causes a change in risk appetite. 3. Those continuing to take long positions in risk assets should consider tight sell stops, though gold and crude may be approaching new breakouts. Crude oil breaches key $74 resistance, implying more upside unless stocks pull back on earnings disappointments. Always use sell stop orders.

GOLD: Continuing to hold near multi-year highs independent of movements in equities, purely on speculation that other central banks and other large buyers may do the same. It is difficult to predict the extent or duration of such a sentiment driven move into new territory. Inflation is not be seen as a threat, but continuing USD declines encourage large USD holders to diversify into gold, especially as long as interest rates remain low and thus reduce the opportunity cost of holding gold. Crude inventories remain high, so there is no immediate problem with supplies that might drive oil higher, especially if the recovery picture does not improve. Famed NYU Economics Professor Nuriel Roubini, credited for calling the current crisis years ago, believes the run in gold is an unsustainable bubble, while famed commodity trader Jim Rodgers holds gold is going much higher.

Crude Oil: For over 2 weeks trading in the $82-$76.50 range, dropped on Friday despite steady stocks, rising gold and a falling USD, suggesting that oil may be showing more sensitivity to underlying fundamentals than gold. The historical range of the oil/gold price ratio is between 12:1, which would suggest oil should be at $91, and 15:1, which would imply oil should be at $73. Thus while crude remains range bound, if gold can hold its 1100 level, as many expect it to do, then crude could follow it sharply higher over time, especially if other risk assets can avoid a sharp correction or there is evidence of continued strong demand from China and other developing economies

WTI Crude Oil Daily Chart

01 Nov 09

EURUSD: Continuing higher after it broke decisively above the key $1.4700 support level (50 day MA + 23.6% Fibonacci retracement from its June rally) on 11/4. Approaching the upper end of its range since late September.

EURUSD DAILY CHART

02 Nov 09

NZDUSD:

Breaking sharply higher in early Monday trade above strong resistance (BB + 50 day SMA) on rising dairy price data and weakening USD as the poor US jobs report pushes USD rate increases further into the future. STILL AT THE LOWER END OF ITS TRADING RANGE FROM MID SEPTEMBER

NB: See a daily chart of the AUDUSD, and note the similarity. Those seeking to trade this pair could apply the above mentioned indicators and comments.

NZDUSD Daily Chart

04 Nov 09

GBPUSD: One of the strongest currencies last week against the USD and EUR as it gained on less than expected expansion of QE, but nearing the top of its trading range since mid July and at the top of its Bollinger Band Range and recent high of $1.700. Could be a good short trade if markets pull back.

GBP/USD Daily Chart.

05 Nov 09

OTHER HEADLINES

Investors look to consumer for clues to recoveryAP – Sun 4:11 pm ET
Investors will get some guidance about the economy this week from data issued not by the government, but by big retailers in the form of third-quarter earnings reports.

One last hurrah-Reuters

Risky assets such as equities and emerging markets may have scope for another rally before the year is out as policymakers renew pledges to keep economic boosters in place. Full Article

(Seekingalpha.com)

Is the Risk Trade Back On?

The Good, the Bad and the Ugly: Australian, U.S. and U.K. Economies

U.S. Employment Picture Remains Unattractive

DISCLOSURE AND DISCLAIMER: OPINIONS EXPRESSED ARE NOT NECESSARILY THOSE OF AVAFX, AUTHOR HAS NO POSITIONS IN ABOVE INSTRUMENTS.





GLOBAL OUTLOOK 11/09: Resilient Risk Appetite Steady After US Jobs Disappointment

9 11 2009

SUMMARY

Stocks: Prior Day: Asia up, Europe up, US Up/flat, this morning Asia, Europe up

– FX: Higher equities Friday, bias against safety currencies [JPY, USD, CHF in order
of safety appeal] in favor of risk currencies [AUD, NZD, CAD, EUR, GBP in order
of risk appetite appeal], USD gains against all majors except for JPY,

– Main events today: AUD: Home Loans m/m, CAD: Housing Starts

Big Theme: Rising risk appetite? or range trading until next major news? Rising thus far this week-See Conclusions below for trading opportunities. TRADERS SHOULD HAVE TRADING PLANS READY FOR MOVES IN EITHER DIRECTION, still unclear if markets have fully digested the US jobs data, and news this week is light, suggesting trading with ranges

STOCKS

US: (Market Diary – Week ending 06-Nov-09 (With Excerpts from Briefing.com)

The S&P 500 gained every session this week, with the bulk of the gain coming on Thursday following solid results from Cisco (CSCO) and a surge in nonfarm productivity. The much talked about stock market correction continues to fail to materialize with the S&P 500 just 2.9% from its 2009 highs and up 60% from it’s march low.

Amazingly, US stocks somehow managed to close higher despite much worse than expected US employment data which seriously undermines the current US recovery picture. Some viewed the weak report as evidence that interest rates will remain low, which is generally good for stocks, and ignored the problems the report poses for consumer spending, as well as the housing and banking sectors. Given the light news week ahead, it will be interesting to see how markets open next week after having had a weekend to digest all the news of last week.

Friday was all about the monthly jobs report. They came in a bit worse than expected (-190K versus -175K expected) but investors could handle that. The problem was that the unemployment aspect of the household survey came in at 10.2%, leapfrogging expectations of 9.9% and topping that 10% level that everyone feared could get here. That is the worst showing since 1983.

There was good and there was bad in the report for the market. The good, on top of the decent non-farm payrolls, were their revisions from August and September that made up for the October miss. There were some other bad areas that I will discuss later. Markets chopped around and in the end the bigger cap stock indexes finished with modest gains, the smaller cap indexes with minor losses.

All ten sectors advanced during the volatile week of trade, though cyclical stocks saw the most buying interest. Industrials surged 6.1%, consumer discretionary advanced 4.7% and materials gained 5.0%. Defensive areas underperformed on a relative basis, with telecom and consumer staples both gaining just 1.0%.

In economic news, third quarter nonfarm productivity surged 9.5% in its preliminary report. That is considerably better than the consensus which called for an increase of 6.5% increase. The surge marked the largest gain in productivity since 2003. It was fueled by the sharp increase in third quarter output and the considerable drop in hours worked. With job conditions still weak, unit labor costs dropped 5.2% in the third quarter. They were expected to fall 4.2%.

October nonfarm payrolls fell 190,000 in October, which was worse than the expected decline of 175,000. Meanwhile, the unemployment rate rose to 10.2% from 9.8%, which was worse than the 9.9% consensus. The rise in unemployment was not due to more workers entering the workforce — the labor force declined by 31,000 people as 259,000 workers left the workforce over the last month. The jump in unemployment was solely due to an increase in the number of unemployed. and reflects the continued challenges in the labor market

In other economic news, ISM Manufacturing Index for October came in at 55.7 (53.0 consensus), the ISM Services Index for October came in at 50.6 (51.5 consensus), construction spending in September spiked 0.8% (-0.2% consensus), and pending home sales for September made a 6.1% monthly increase (consensus unchanged).

In monetary policy news, the Federal Reserve didn’t provide much a surprise in its statement, keeping its language unchanged that low interest rates are warranted for an extended period of time. The Bank of England and European Central Bank also opted to keep their rates unchanged, as expected.

There were a fewer big names among the 94 S&P 500 companies that reported earnings this week as Q3 earnings season starts to wind down, there was . The trend of better than expected earnings continued (75 beat), with revenue failing to match the EPS performance (45 beat).

Of the larger market cap companies reporting this week — Cisco, CVS, Kraft (KFT), Qualcomm (QCOM) and Time Warner (TWX) — all reported better-than-expected results. Kraft, however, came up came up short on revenue, and as a result fell 2.7% for the week. With regard to Cisco, the tech bellwether authorized $10 billion more in share buybacks issued a solid outlook during its conference call, helping its shares rise 4.3% on the week.

In other corporate news, Warren Buffet’s Berkshire Hathaway (BRK.A) announced a cash and stock offer for Burlington Northern (BNI) at $100 per share. The news sent BNI up 29% for the week, with peers Union Pacific (UNP) and CSX (CSX) also posting healthy gains of 13%.

In commodity trading, gold gained nearly 6% to hit an all-time nominal intraday high of just over $1100 per ounce. Oil prices also gained in a volatile week of gain, up about 1% as the dollar dropped about 0.8%.

Index Started Week Ended Week Change % Change YTD %
DJIA 9712.73 10023.42 310.69 3.2 14.2
Nasdaq 2045.11 2112.44 67.33 3.3 34.0
S&P 500 1036.19 1069.30 33.11 3.2 18.4
Russell 2000 562.77 580.35 17.58 3.1 16.2

Special Section-Friday’s Jobs Reports: Non Farms Payrolls and Unemployment

This was one of the most important jobs reports in quite some time because the non-farm payrolls have been trending lower and everyone is looking to when they actually get to zero. It is the same with the weekly claims – right now, we just want it to get below 500K. Neither is working out for now. In addition, the slow recovery picture is priced into risk assets. For continued gains, markets need evidence to set expectations higher.US job recovery a key part of that.

Jobs were down more than expected (-190K. Revised -154K from -201K in August; -219K from -263K in September). The revisions more than made up for the miss on the non-farm payrolls number, so that is a positive.

The non-farm payrolls are interesting because it is mostly the large companies that they survey. They try to factor in the smaller companies and small businesses, but it is very difficult for the government to get that information accurately and quickly enough. It was worse than expected, but not drastically so, and the markets absorbed it well.

On the other hand, there is a 10.2% unemployment rate, and that is the highest since 1983. There is an argument about whether the non-farm payrolls or the household survey is more important. Greenspan always said the non-farms payroll was more important, but as we saw coming out of the recession in 2001, the household survey was more accurate. We saw that it was improving, and it was showing the right kind of improvement because there were many small businesses that were created thanks to tax incentives. We saw S corporations proliferate. The filings for those proliferated and small partnerships also surged.

We are not seeing that this time, however. There is not a surge of any kind of small businesses as the non-farm payrolls number improved, and the household number is getting worse and worse. It is my view, and the view of many smart economists, that household is more important when you come out of recession because many of the jobs are gone. JNJ and GE and those places are not going to be hiring people because they are still laying people off. The jobs are going to come from the smaller businesses, and if the smaller ones are still saying things are bad, then things are bad.

There was a 10.2 unemployment rate, but there were interesting figures with respect to the headlines below the headlines. 17.5% of the work force is either unemployed or underemployed. Underemployed means they would like to work more but cannot get the jobs. That is why we are seeing the temporary jobs growing. That is a key factor, and it has been up for two months in a row. People want to work but they cannot.

The job pool actually decreased by 500K workers. At the same time, the new unemployed increased by 1M. It was not just a factor of more people entering into the jobs market and thus pumping up the number of people out there unemployed. The number of new unemployed rose, so we have a serious problem. The headlines under the headlines are showing that things are not improving in employment, but they are worsening. Some of the anecdotal data from Challenger says that the layoffs are fewer, but those are only the big companies. They do not cover the small ones as closely and cannot cover them as accurately.

More than that, the average workweek is critical. It has to increase before there will be new hires. It stayed flat at 33.0, and that is after declining from 33.3 to 33.2, to 33.1 and now holding at 33.0 for two months in a row. We have a serious problem because it has to get up to 3.5 – 3.6 before they get to the point of thinking about adding even temporary workers.

Increases in productivity don’t help the employment picture. You can have a lot of productivity, but if companies do not feel things will get better, they are not going to hire anyway. They are just going to reap the benefits of having higher productivity and then stockpile the cash. That is good for earnings, but we are looking for jobs and getting the economy back on track. If companies are worried that jobs are going to be bad in 2010, so much so that they are not spending any of their cash on new employees, then that is a serious problem.

Asia: Asian stock markets were flat or rose slightly Monday. Some commentators said that investors took a surprisingly weak U.S. jobs report as a sign that interest rates in the world’s largest economy will stay low longer than expected, though this view ignores the implications of declining incomes in the US for US and global recovery which in turn allows the higher earnings that drive stock prices. Thus we would not be shocked to see markets waver or drop after digesting the US jobs reports.

Europe: LONDON, Nov 5 (Reuters) – European shares set a one-week closing high on Thursday after data showed new claims for U.S. jobless aid fell to a 10-month low and business productivity in the third quarter grew at the fastest pace in six years.

GLOBAL

MARKETS FRIDAY

ASIA- UP N225I +0.74% HS +1.63 % SSEC +0.85 FTSTI +1.09% AORD +0.89 %
EUROPE UP FTSE +0.33% DAX +0.13% CAC -0.04%
US- UP/FLAT S&P +0.25% DJIA +0.17% NASDAQ +0.34%
THIS MORNING
ASIA CLOSING UP
N225I +0.20% HS +1.73 % SSEC +0.36 FTSTI +0.88% AORD +1.78 %
EUROPE: OPEN UP
FTSE +1.02% DAX +1.17% CAC +1.11%

Oil: Closed at $77.65, -2.47% Friday, pressured by the weak jobs data and belief that declining inventories reflected declining imports more than improving demand. Oil was still up about 1% over the past week. Monday morning Oil prices rose above $78 a barrel Monday in Asia as a weaker U.S. dollar offset signs of slumping consumer demand. Benchmark crude for December delivery was up 94 cents to $78.37 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange.

Barclays expects oil prices to average $76 a barrel in the fourth quarter and $85 next year.

Gold: Closed +0.59% Friday, up over 6% during the past week on the big CB of India purchase from the IMF, which traders took to be indicative of demand by other central banks and sovereign funds. Will these follow suit?

Gold edged up on Monday and hovered near last week’s lifetime high above $1,100 on a falling U.S. dollar and after a weaker-than-expected U.S. unemployment rate revived worries about the health of the global economy.

Gold has gained as much as 25.2 percent in 2009, driven by persistent weakness in the U.S. currency, and recently by the failure of a meeting of the Group of 20 finance officials to talk more specifically about the dollar’s decline.

"The fundamental outlook for gold remains favorable. We expect a renewed test of the $1,100 mark for gold prices this week," Credit Suisse said in a research report.

CURRENCIES: Bias to risk currencies due to overall recent up-trend in stocks. Remarkable resilience in risk appetite as it holds on despite worrisome US jobs reports (see Weekly Outlook). Interesting to see how markets open after a weekend to digest the results.

USD: The U.S. dollar rose slightly Friday against the EUR after the weak jobs report, but fell on Monday morning trade as the report pushed Fed rate increases further into the future, extending the dollar’s role as a preferred funding currency for carry trades, while the New Zealand dollar led other commodity-linked currencies sharply higher after dairy giant Fonterra lifted its forecast payout to farmer shareholders by almost 20 percent.

Data from the Commodity Futures Trading Commission on Friday showed that speculators had slightly trimmed USD shorts but that the dollar has been heavily shorted for 26 weeks and there is little sign of that changing barring a sharp pullback in stocks and risk appetite.

Also hurting the U.S. dollar was a meeting of the Group of 20 finance officials meeting that failed to take any concrete action to rebalance global flows or talk more specifically about the dollar’s recent decline

The International Monetary Fund in a statement said while the U.S. dollar has depreciated in the recent months, it still remained on the "strong" side, sparking another bout of selling in Asia.

The dollar index was 0.23 percent lower.

EUR: – the euro higher at $1.4870, from $1.4846 late in New York on Friday, rising over $1.4950

JPY – The yen gained against the U.S. dollar to 89.75 yen, from around 89.92 late on Friday, while it held steady on the euro at ¥133.50 yen. Data from the Commodity Futures Trading Commission on Friday showed that speculators had increased their long positions on the yen while trimming those in the euro. The USDJPY is rising slightly in early Monday trade.

GBP Up vs. the USD and EUR, again on Friday and Monday morning as the GBP gained on news of less than expected QE increase.

AUD: The Australian dollar climbed to above $0.9200, mirroring the sharp gains in the New Zealand dollar.

NZD: Moving up with stocks all last week against the USD. The New Zealand dollar surged to around $0.7350, its highest since Oct 29, from about $0.7243 in late Friday trade. Dairy is New Zealand’s biggest export and the increase in Fonterra’s payout mirrored an increase in international dairy prices.

CAD: Steadily gaining against the USD all last week into Monday morning following stocks higher, despite oil’s choppy action.

CHF: Gaining against the USD, in a tight range against the EUR, tracking risk appetite with SNB pressuring it against the EUR.

CONCLUSIONS: Surprisingly resilient optimism despite high valuations and a negative US employment report. For now, risk assets steady or rising. Traders should consider going with the current trend but be ready for pullbacks. See below for specific opportunities with CRUDE, GOLD, EURUSD, NZDUSD, AUDUSD, GBP/USD

Trading Opportunities: Near term has favored risk currencies, shorting safe-haven assets. Today’s news is quiet, indeed, the week is fairly quiet, suggesting range trading. Given that markets remain very high despite mixed earnings and negative US jobs reports, still awaiting a pullback. Thus: 1. be prepared to play a pullback in risk assets and get ready to sell stock indexes, commodities, and risk currencies, buying USD, JPY. 2. Trade the near term horizontal trading ranges that should hold until major news causes a change in risk appetite. 3. Those continuing to take long positions in risk assets should consider tight sell stops, though gold and crude may be approaching new breakouts. Crude oil breaches key $74 resistance, implying more upside unless stocks pull back on earnings disappointments. Always use sell stop orders.

GOLD: Continuing to hold near multi-year highs independent of movements in equities, purely on speculation that other central banks and other large buyers may do the same. It is difficult to predict the extent or duration of such a sentiment driven move into new territory. Inflation is not be seen as a threat, but continuing USD declines encourage large USD holders to diversify into gold, especially as long as interest rates remain low and thus reduce the opportunity cost of holding gold. Crude inventories remain high, so there is no immediate problem with supplies that might drive oil higher, especially if the recovery picture does not improve. Famed NYU Economics Professor Nuriel Roubini, credited for calling the current crisis years ago, believes the run in gold is an unsustainable bubble, while famed commodity trader Jim Rodgers holds gold is going much higher.

Crude Oil: For over 2 weeks trading in the $82-$76.50 range, dropped on Friday despite steady stocks, rising gold and a falling USD, suggesting that oil may be showing more sensitivity to underlying fundamentals than gold. The historical range of the oil/gold price ratio is between 12:1, which would suggest oil should be at $91, and 15:1, which would imply oil should be at $73. Thus while crude remains range bound, if gold can hold its 1100 level, as many expect it to do, then crude could follow it sharply higher over time, especially if other risk assets can avoid a sharp correction or there is evidence of continued strong demand from China and other developing economies

image0015

WTI Crude Oil Daily Chart

01 Nov 09

EURUSD: Continuing higher after it broke decisively above the key $1.4700 support level (50 day MA + 23.6% Fibonacci retracement from its June rally) on 11/4. Approaching the upper end of its range since late September.

image0026

EURUSD DAILY CHART

02 Nov 09

NZDUSD:

Breaking sharply higher in early Monday trade above strong resistance (BB + 50 day SMA) on rising dairy price data and weakening USD as the poor US jobs report pushes USD rate increases further into the future. STILL AT THE LOWER END OF ITS TRADING RANGE FROM MID SEPTEMBER

NB: See a daily chart of the AUDUSD, and note the similarity. Those seeking to trade this pair could apply the above mentioned indicators and comments.

image0036

NZDUSD Daily Chart

04 Nov 09

GBPUSD: One of the strongest currencies last week against the USD and EUR as it gained on less than expected expansion of QE, but nearing the top of its trading range since mid July and at the top of its Bollinger Band Range and recent high of $1.700. Could be a good short trade if markets pull back.

image0042

GBP/USD Daily Chart.

05 Nov 09

OTHER HEADLINES

Investors look to consumer for clues to recoveryAP – Sun 4:11 pm ET
Investors will get some guidance about the economy this week from data issued not by the government, but by big retailers in the form of third-quarter earnings reports.

One last hurrah-Reuters

Risky assets such as equities and emerging markets may have scope for another rally before the year is out as policymakers renew pledges to keep economic boosters in place. Full Article

(Seekingalpha.com)

Is the Risk Trade Back On?

The Good, the Bad and the Ugly: Australian, U.S. and U.K. Economies

U.S. Employment Picture Remains Unattractive

DISCLOSURE AND DISCLAIMER: OPINIONS EXPRESSED ARE NOT NECESSARILY THOSE OF AVAFX, AUTHOR HAS NO POSITIONS IN ABOVE INSTRUMENTS.





GLOBAL OUTLOOK 11/09 CHEAT SHEET: Resilient Risk Appetite Steady After US Jobs Disappointment

9 11 2009

Stocks: Prior Day: Asia up, Europe up, US Up/flat, this morning Asia, Europe up

– FX: Higher equities Friday, bias against safety currencies [JPY, USD, CHF in order
of safety appeal] in favor of risk currencies [AUD, NZD, CAD, EUR, GBP in order
of risk appetite appeal], USD gains against all majors except for JPY,

– Main events today: AUD: Home Loans m/m, CAD: Housing Starts

Big Theme: Rising risk appetite? or range trading until next major news? Rising thus far this week-See Conclusions below for trading opportunities. TRADERS SHOULD HAVE TRADING PLANS READY FOR MOVES IN EITHER DIRECTION, still unclear if markets have fully digested the US jobs data, and news this week is light, suggesting trading with ranges

STOCKS: SEE FULL VERSION DAILY AND WEEKLY FOR DETAILS ON THE BELOW & ANALYSIS OF US JOBS REPORTS

US: Amazingly, US stocks somehow managed to close higher Friday and finish the week close to its 2009 highs, despite much worse than expected US employment data which seriously undermines the current US recovery picture. Some viewed the weak report as evidence that interest rates will remain low, which is generally good for stocks, and ignored the problems the report poses for consumer spending, as well as the housing and banking sectors. Given the light news week ahead, it will be interesting to see how markets open next week after having had a weekend to digest all the news of last week.

Asia: Asian stock markets were flat or rose slightly Monday. Some commentators said that investors took a surprisingly weak U.S. jobs report as a sign that interest rates in the world’s largest economy will stay low longer than expected, though this view ignores the implications of declining incomes in the US for US and global recovery which in turn allows the higher earnings that drive stock prices. Thus we would not be shocked to see markets waver or drop after digesting the US jobs reports.

Europe: LONDON, Nov 5 (Reuters) – European shares set a one-week closing high on Thursday after data showed new claims for U.S. jobless aid fell to a 10-month low and business productivity in the third quarter grew at the fastest pace in six years.

ASIA- UP N225I +0.74% HS +1.63 % SSEC +0.85 FTSTI +1.09% AORD +0.89 %
EUROPE UP FTSE +0.33% DAX +0.13% CAC -0.04%
US- UP/FLAT S&P +0.25% DJIA +0.17% NASDAQ +0.34%
THIS MORNING N225I +0.20% HS +1.73 % SSEC +0.36 FTSTI +0.88% AORD +1.78 %
FTSE +1.02% DAX +1.17% CAC +1.11%

Oil: Closed at $77.65, -2.47% Friday, pressured by the weak jobs data and belief that declining inventories reflected declining imports more than improving demand. Oil was still up about 1% over the past week. Monday morning Oil prices rose above $78 a barrel Monday in Asia as a weaker U.S. dollar offset signs of slumping consumer demand.

Gold: Closed +0.59% Friday, up over 6% during the past week on the big CB of India purchase from the IMF, which traders took to be indicative of demand by other central banks and sovereign funds. Will these follow suit? Further USD declines could spark more big buys

CURRENCIES: Bias to risk currencies due to overall recent up-trend in stocks. Remarkable resilience in risk appetite as it holds on despite worrisome US jobs reports (see Weekly Outlook). Interesting to see how markets open after a weekend to digest the results.

USD: The U.S. dollar rose slightly Friday against the EUR after the weak jobs report, but fell on Monday morning trade as the report pushed Fed rate increases further into the future, extending the dollar’s role as a preferred funding currency for carry trades, while the New Zealand dollar led other commodity-linked currencies sharply higher after dairy giant Fonterra lifted its forecast payout to farmer shareholders by almost 20 percent. USD futures remain heavily short, lack of expected G20 support for the USD also undermines it.

The dollar index was 0.23 percent lower.

EUR: – the euro higher at $1.4870, from $1.4846 late in New York on Friday, rising over $1.4950

JPY – The yen gained against the U.S. dollar to 89.75 yen, from around 89.92 late on Friday, while it held steady on the euro at ¥133.50 yen. Data from the Commodity Futures Trading Commission on Friday showed that speculators had increased their long positions on the yen while trimming those in the euro. The USDJPY is rising slightly in early Monday trade.

GBP Up vs. the USD and EUR, again on Friday and Monday morning as the GBP gained on news of less than expected QE increase.

AUD: The Australian dollar climbed to above $0.9200, mirroring the sharp gains in the New Zealand dollar.

NZD: Moving up with stocks all last week against the USD. The New Zealand dollar surged to around $0.7350, its highest since Oct 29, from about $0.7243 in late Friday trade. Dairy is New Zealand’s biggest export and the increase in Fonterra’s payout mirrored an increase in international dairy prices.

CAD: Steadily gaining against the USD all last week into Monday morning following stocks higher, despite oil’s choppy action.

CHF: Gaining against the USD, in a tight range against the EUR, tracking risk appetite with SNB pressuring it against the EUR.

CONCLUSIONS: Surprisingly resilient optimism despite high valuations and a negative US employment report. For now, risk assets steady or rising. Traders should consider going with the current trend but be ready for pullbacks. SEE FULL DAILY ANALYSIS for description of specific opportunities with CRUDE, GOLD, EURUSD, NZDUSD, AUDUSD, GBP/USD.

Trading Opportunities: Near term has favored risk currencies, shorting safe-haven assets. Today’s news is quiet, indeed, the week is fairly quiet, suggesting range trading. Given that markets remain very high despite mixed earnings and negative US jobs reports, still awaiting a pullback. Thus: 1. be prepared to play a pullback in risk assets and get ready to sell stock indexes, commodities, and risk currencies, buying USD, JPY. 2. Trade the near term horizontal trading ranges that should hold until major news causes a change in risk appetite. 3. Those continuing to take long positions in risk assets should consider tight sell stops, though gold and crude may be approaching new breakouts. Crude oil breaches key $74 resistance, implying more upside unless stocks pull back on earnings disappointments. Always use sell stop orders.

GOLD: Continuing to hold near multi-year highs independent of movements in equities, purely on speculation that other central banks and other large buyers may do the same. It is difficult to predict the extent or duration of such a sentiment driven move into new territory. Inflation is not be seen as a threat, but continuing USD declines encourage large USD holders to diversify into gold, especially as long as interest rates remain low and thus reduce the opportunity cost of holding gold. Crude inventories remain high, so there is no immediate problem with supplies that might drive oil higher, especially if the recovery picture does not improve. Famed NYU Economics Professor Nuriel Roubini, credited for calling the current crisis years ago, believes the run in gold is an unsustainable bubble, while famed commodity trader Jim Rodgers holds gold is going much higher.

Crude Oil: For over 2 weeks trading in the $82-$76.50 range, dropped on Friday despite steady stocks, rising gold and a falling USD, suggesting that oil may be showing more sensitivity to underlying fundamentals than gold. The historical range of the oil/gold price ratio is between 12:1, which would suggest oil should be at $91, and 15:1, which would imply oil should be at $73. Thus while crude remains range bound, if gold can hold its 1100 level, as many expect it to do, then crude could follow it sharply higher over time, especially if other risk assets can avoid a sharp correction or there is evidence of continued strong demand from China and other developing economies

image0014

WTI Crude Oil Daily Chart

01 Nov 09

EURUSD: Continuing higher after it broke decisively above the key $1.4700 support level (50 day MA + 23.6% Fibonacci retracement from its June rally) on 11/4. Approaching the upper end of its range since late September.

image0025

EURUSD DAILY CHART

02 Nov 09

NZDUSD:

Breaking sharply higher in early Monday trade above strong resistance (BB + 50 day SMA) on rising dairy price data and weakening USD as the poor US jobs report pushes USD rate increases further into the future. STILL AT THE LOWER END OF ITS TRADING RANGE FROM MID SEPTEMBER

NB: See a daily chart of the AUDUSD, and note the similarity. Those seeking to trade this pair could apply the above mentioned indicators and comments.

image0035

NZDUSD Daily Chart

04 Nov 09

GBPUSD: One of the strongest currencies last week against the USD and EUR as it gained on less than expected expansion of QE, but nearing the top of its trading range since mid July and at the top of its Bollinger Band Range and recent high of $1.700. Could be a good short trade if markets pull back.

image0041

GBP/USD Daily Chart.

05 Nov 09

OTHER HEADLINES

Investors look to consumer for clues to recoveryAP – Sun 4:11 pm ET
Investors will get some guidance about the economy this week from data issued not by the government, but by big retailers in the form of third-quarter earnings reports.

One last hurrah-Reuters

Risky assets such as equities and emerging markets may have scope for another rally before the year is out as policymakers renew pledges to keep economic boosters in place. Full Article

(Seekingalpha.com)

Is the Risk Trade Back On?

The Good, the Bad and the Ugly: Australian, U.S. and U.K. Economies

U.S. Employment Picture Remains Unattractive

DISCLOSURE AND DISCLAIMER: OPINIONS EXPRESSED ARE NOT NECESSARILY THOSE OF AVAFX, AUTHOR HAS NO POSITIONS IN ABOVE INSTRUMENTS.

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No “Great Expectations” for Dickens’ UK Boosting GBP vs USD, EUR

8 11 2009

Summary

Pound Outlook: Neutral/Bullish Near Term

– Events: Tuesday Trade Balance, Wed. Claimant Count, BoE Gov speaks, Inflation Report

– Rallies on Bank of England monetary policy of “only” another £25 bln QE

– Pound likely to continue appreciating versus Euro

Analysis

Among the top performing currencies this past week, the GBP’s relatively bullish fundamental developments helped push the currency up from major bearish sentiment extremes. The highly-anticipated Bank of England monetary policy statement sent the British Pound immediately higher on unexpectedly limited actions from the central bank. The BoE expanded its Quantitative Easing measures by ₤25 billion, half the expected amount, so the British Pound actually rallied on the relatively good news. Further moves may depend on the coming week’s UK employment numbers, but previously-extreme FX market positioning suggests that risks remain to the upside for the near future.

The EUR/GBP repeats the sterling’s strength against the USD, and is starting to descend toward a two-month low. As Kathy Lien (fx360.com) wryly notes, the EUR’s fall is a bit ironic considering that the ECB is much closer to unwinding such unconventional techniques.

Nevertheless, it’s all about expectations, and the GBP has done better recently relative to its admittedly lower expectations. British economic data may have given the pound an added lift. Producer Price Inputs rose to a 16-month high at 2.6%, while annual input prices increased for the first time in nine months.

Events

The middle of next week is set to produce some very important indicators for British strength, and the FX options market volatility expectations remain high. The first of which is the Trade Balance, expected for release on Tuesday. On Wednesday, we receive both the Jobless Claims change and the BoE’s Quarterly inflation report, both of which can move th GBP. Because many are pointing to the rising unemployment rate as one of the prime weak links in the UK economy, the employment report on Wednesday will obviously get added weight. The Inflation report should provide added evidence as to the BoE’s reasoning for expanding QE by only £25 billion and if we could expect an additional rise in future meetings. This recent rate announcement underlined market sensitivity to any and all shifts in monetary policy.

Clearly then GBP traders should pay close attention to the upcoming Quarterly Inflation Report release. As we just saw, any excessively dovish or hawkish rhetoric could easily force substantial volatility in forecasts and thus in the GBP.

UK Jobless Claims numbers are similarly difficult to predict, but fairly bullish market expectations arguably leave the door open for disappointments. The Bank of England is an inflation-targeting central bank and so does not technically target unemployment rates.

Yet the Unemployment rate is a major factor in the BoE’s decision-making process, so surprises in UK Jobless Claims numbers could force major moves in yield expectations.

The British Pound currently trades at fairly substantial technical resistance against the Euro and US Dollar. We have argued that previous bearish sentiment extremes would lead to a major GBP recovery, and we believe that a further correction in overextended positioning could move the GBP higher.





GLOBAL OUTLOOK CHEAT SHEET 11/06: NFP DAY AND HOW TO PLAY IT

6 11 2009

GLOBAL OUTLOOK CHEAT SHEET 11/06: NFP DAY AND HOW TO PLAY IT

Stocks: Thursday: Asia down, Europe up, US up, Friday morning Asia, Europe up

– FX: Higher equities Thursday, bias against safety currencies [JPY, USD, CHF in
order of safety appeal] in favor of risk currencies [AUD, NZD, CAD, EUR, GBP in
order of risk appetite appeal], USD down against all majors except for JPY,

– Main events today: GBP: PPI Input m/m, CAD: Unemployment Change and Rate, USD: NFP Change, Unemployment Rate, Avg Hourly Earnings m/m, ALL: G20 Friday, Saturday

Big Theme: Risk Appetite Back? Rising thus far this week-See Conclusions below for trading opportunities as many assets approach or breaching key levels. Light news until US Employment report TRADERS SHOULD HAVE TRADING PLANS READY FOR MOVES IN EITHER DIRECTION, MARKET REACTION TO NEWS TO DECIDE. RISING MARKETS AHEAD OF NFP SUGGESTS RESILIENT OPTIMISM (OR SETUP FOR FRIDAY PROFIT TAKING?)

STOCKS

US: (AP) A bright forecast from Cisco Systems + upbeat economic news sent stocks soaring Thursday and the Dow industrials back above 10,000. The rally, coming a day before the government’s October employment report, showed investors are regaining their optimism about the recovery. The S&P 500 regained the 1060 level it had lost on last Friday’s profit taking. Ahead today, the month’s climactic economic event, US monthly employment data, which will provide the next key insight into the recovery’s progress and the health of the all important US consumer’s ability to spend. SEE FULL VERSION FOR MORE ON NFP, OUTLOOK AND HOW TO TRADE

Asia: Japan’s Nikkei stock average rose 0.9 percent on Friday as exporters such as Canon Inc climbed after good U.S. job news renewed hopes about the pace of economic recovery, with tech shares up after gains by their U.S. peers. Hong Kong shares climbed on Friday, spurred by gains on Wall Street and encouraging U.S. data, while China rose to a fresh three-month high as steel and metal shares firmed.

Europe: LONDON, Nov 5 (Reuters) – European shares set a one-week closing high on Thursday after data showed new claims for U.S. jobless aid fell to a 10-month low and business productivity in the third quarter grew at the fastest pace in six years.

ASIA- DOWN N225I -1.29% HS -0.63 % SSEC +0.85 FTSTI -0.73% AORD -0.62 %
EUROPE UP FTSE +0.35% DAX +0.67% CAC +0.63%
US- UP S&P +1.92% DJIA +2.08% NASDAQ +2.42%
THIS MORNING N225I +0.74% HS +1.63 % SSEC +0.28 FTSTI +1.17% AORD +1.39 %
FTSE +0.03% DAX +0.12% CAC +0.10%

Oil: Continuing to hover around $80/bbl in Thursday and early Friday morning trade. However, analysts said most of the optimism has already been priced in and persistently sluggish energy demand in the US, the world’s largest energy consumer, could limit oil’s gains. "We think upside in crude will be rather limited as supportive macro factors start to fade and physical markets remain weak."

Gold: Continuing to break to new highs following the news India’s 200 tonne purchase from the IMF, currently breaching $1090. Press reports indicate that the RBI made their purchases between October 19th and 30th at an average price of $1,045 an ounce-with gold likely to test the 1,100 level, they’re already profiting brilliantly. A gain of about $50 an ounce is about a five percent rise increase in the RBI’s $6.7 billion purchase, which is a gain of about $335 million. That’s a lot of Rupees.

CURRENCIES: Bias to risk currencies due to overall recent up-trend in stocks. FX trade today will move with how stocks react to the major news events mentioned above. An index that measures the dollar against six other major currencies rose 0.1 percent <.DXY>, while the euro, the biggest component of that basket, was unchanged at $1.4874

USD: NEW YORK, Nov 5 (Reuters) – Losing ground against riskier higher yielding currencies as stocks, gold rise. A surprise in either direction in the NFP and related reports could send the USD moving hard.

EUR: – euro gains above $1.49 were short-lived, and analysts said investors were largely moving to the sidelines ahead of Friday’s jobs report, expected to show a slower pace of U.S. job losses but another rise in the unemployment rate.

JPY – The dollar rose 0.1 percent to 90.76 yen Thursday. Losing ground against most of its counterparts. We remain cautious on JPY performance and look for USDJPY to remain choppy around 90 in the near-term.

GBP – Up against the USD and EUR, again on Thursday to $1.6582 as the GBP gained on news of less than expected QE increase.

AUD: Up 0.48% against the USD following stocks higher against it all this week along with other risk currencies

NZD: Moving up with stocks Wednesday and Thursday morning against the USD

CAD: Slowly gaining against the USD all this week into today following oil, stocks higher .

CHF: Following overall risk sentiment, thus the CHF has been in a tight range, gaining against the USD, EUR

CONCLUSIONS: Surprising optimism for the days so close to the US employment reports suggests most traders believe the figure will beat expectations and send markets higher. We say proceed w/ caution waiting until trend clarifies before entering new. SEE THE FULL VERSION FOR specific opportunities with CRUDE, GOLD, EURUSD, NZDUSD, AUDUSD, GBP/USD

Trading Opportunities: Near term has favored risk currencies, shorting safe-haven assets. Today’s news is quiet until 13:30 GMT US employment data. Along with the normal tendency to profit taking on Fridays, we suspect a bias to risk averse trade until the data comes out. The picture will be clearer after markets have had 4+ hours to digest the information Thus: 1. be prepared to play a pullback in risk assets and get ready to sell stock indexes, commodities, and risk currencies, buying USD, JPY. 2. Trade the near term horizontal trading ranges that should hold until major news causes a change in risk appetite. 3. Those continuing to take long positions in risk assets should consider tight sell stops, though gold and crude may be approaching new breakouts. Crude oil breaches key $74 resistance, implying more upside unless stocks pull back on earnings disappointments. Always use sell stop orders.

GOLD: Continuing to hold near multi-year highs independent of movements in equities, purely on speculation that other central banks and other large buyers may do the same. It is difficult to predict the extent or duration of such a sentiment driven move into new territory. However, if news over the remainder of the week is strongly bearish for equities, it is difficult to see how oil and gold could continue to rise. Inflation would not be seen as a threat, thus undermining further gold advances. Crude inventories remain high, so there is no immediate problem with supplies that might drive oil higher, especially if the recovery picture does not improve. Famed NYU Economics Professor Nuriel Roubini, credited for calling the current crisis years ago, believes the run in gold is an unsustainable bubble, while famed commodity trader Jim Rodgers holds gold is going much higher.

Crude Oil: Up slightly Wednesday near $79.50, unchanged in early Thursday trade. Still following the speculative rush into gold following India’s central bank bullion purchase despite stocks struggling. Next resistance is at $82. The combined price support around $77 has held over the past week. If the series of key news items over the next 3 days does not cause any surprises, then we might expect crude to trade within this $77-82 range. Positive surprises could cause crude to challenge the $82 level, and disappointments, especially in those related to unemployment, could pressure it towards $77 and below. If the FOMC surprises with a more dovish than expected statement, that would weaken the USD and thus help crude, whereas a more bullish FOMC wording could push the USD up and pressure oil. Watch the S&P and gold to see how news is affecting the markets and crude.

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WTI Crude Oil Daily Chart

02 Nov 04

EURUSD: Broke decisively above the key $1.4700 support level (50 day MA + 23.6% Fibonacci retracement from its June rally, also lower BB band around 1.4657) on dovish Fed comments Look to play this break above this upside break to at least 1.4845, the high of the past few days, or if more bad news or drops in global equities, a break below to at least the lower Bollinger Band at around 1.4653, next support at around 1.4600, a convergence of past price support AND just above the 38.2% Fibonacci retracement from the June rally at 1.4565 . If gold and oil continue to move up on speculative pressure independent of equities, that could pressure the USD and drive this pair higher. Similarly, if gold and oil drop back the USD should strengthen and pressure the pair lower, though much depends on what equities are doing at the time. Note that like other risk assets it’s pulling back Thursday morning, not unexpected as traders turn cautious ahead of ECB, BoE statements today and US employment data Friday

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EURUSD DAILY CHART

02 Nov 03

NZDUSD: THE TRADE FOR THE NEXT 2 DAYS

Update: Virtually unchanged for the past 4 days around 0.7180, dropping slightly into Thursday

Background: Arguably one of the most overbought pairs because it moved up with the AUDUSD even though New Zealand’s economic fundamentals and recovery story was not nearly as compelling as Australia’s. Thus when the current pullback began, it was very vulnerable and came in hard and broke strong support near the $0.7250, where both its 50 day MA AND 23.6% Fibonacci retracement converged. Currently sitting on multiday support around 0.7160, it is currently falling (despite positive Labor Cost index q/q data this morning) and testing this level as Asian stocks pull back, apparently unimpressed by Wall Street’s last minute rally on below average volume.

Recommendation: No real support until $0.7077, at which level both a minor price support level from September and the 38.2% Fibonacci retracement converge to reinforce each other. No major NZD or USD news Tuesday, so this will move with overall market sentiment, which is currently down in Asia. However Wednesday is packed with top events in both the US and NZ (see Summary-Key Events at the top) to virtually guarantee volatility.

To play the further drop, entry near current levels as shown on the chart below while sufficient profit potential remains before the $0.7077.

To play the upside, wait until stocks start climbing on some substantially positive news that could sustain a multi-day bounce, and the pair breaks above $0.7160. Wednesday’s packed calendar should provide clarification of the trend until Friday’s US NFP comes out.

As noted above, if gold and oil continue to move up independently of moves in equities, that could pressure the USD and drive this pair higher. Similarly, if gold and oil drop back the USD should strengthen and pressure the pair lower, though much depends on what equities are doing at the time.

NB: See a daily chart of the AUDUSD, and note the similarity. Those seeking to trade this pair could apply the above mentioned indicators and comments.

image0034

NZDUSD Daily Chart

03 Nov 04

GBPUSD: Made its big move up in Mid October because the BoE hinted at QE ending sooner than expected. If in fact Thursday’s statement reveals further QE, especially if it’s the full 50 bln that many anticipate, that might cause the pair to drop to at least the 1.6300 support level it held after the terrible Q3 GDP figures. If the US employment figures disappoint on Friday, the general retreat in risk assets could send the pair back toward the deeper support level at 1.5800 that it held before the BoE jawboned the pair higher on pure talk.

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GBP/USD Daily Chart.

BoE announcement of additional QE, along with disappointing US employment data on Friday could send it back to its mid October levels around 1.500 as part of a general retreat in risk assets, and flight-to-safety driven USD demand. Any upside surprise in either event could well send the pair higher.

02 Nov 05

OTHER HEADLINES

South Korea OK’s India free trade agreement- AP

Unemployment nears 10 pct. as rebound remains slow- AP

World unemployment up despite economic recovery- AP

Taxpayers risked trillions at height of crisis- AP

Stocks surge on jobs data, Cisco forecast- AP

Banks borrow more from emergency Fed program- AP

(Seekingalpha.com)

Gold Is Not in a Bull Market

Corrupted by the Treasury

The Significance of the IMF-RBI Gold Sale

What If World Governments Had Washed Their Hands of the Financial Crisis?

Today’s FOMC Meeting: Extended Life Support for Markets?

DISCLOSURE AND DISCLAIMER: OPINIONS EXPRESSED ARE NOT NECESSARILY THOSE OF AVAFX, AUTHOR HAS NO POSITIONS IN ABOVE INSTRUMENTS.

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