- Friday stocks: Asia mixed, Europe, US up on low volume. Monday morning Asia down on fears of Chinese credit cutbacks.
- Most risk assets following US stocks: Friday- up slightly Early Monday-dropping, Last Week-Tight trading ranges
- Lots of data this week: numerous PMI, central bank, confidence, employment data. US Non Farms Payroll data the likely climax
STOCKS
US
Weekly Recap - Week ending 28-Aug-09The stock market logged another winning week -- albeit a slight one -- as a solid gain in financials was offset by losses in six of the ten economic sectors. Overall it was a relatively slow news week with very few earnings reports, though participants did have some economic and banking data to digest.
In the end, the S&P 500 rose 0.3%, hitting fresh highs for 2009. The financial sector led the way, advancing 0.7%, followed by the tech sector (+0.3%) which benefited from better-than-expected earnings and guidance from two bellwethers. Defensive sectors underperformed, with utilities shedding 0.7% and health care giving up 0.9%.
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Economic data was mostly better-than-expected, though it failed to provide a sustainable lift for the market. Housing was in focus with two more reports coming out ahead of estimates, though from depressed levels.
New home sales for July rose at a 9.6% annualized rate to 433,000 units, which is well above the 390,000 that had been expected -- the sharpest percent rise since 2005. That helped bring inventory down to a 7.5 month supply from an 8.5 month supply. The new home sales increase comes on the heels of multiple positive reports in the housing market, signaling that the bottoming of the housing market may be near. The Case-Shiller 20-city home price index rose on a month-month basis, and the year-over-year drop impred to 15.4%. This was better than the 16.4% year-over-year drop that economists had forecasted.
The preliminary Q2 GDP reading was unchanged from the advance reading at a 1.0% annualized decline, better than the 1.5% drop that was expected. The reading benefited from a smaller-than-expected drop in consumer spending.
The latest weekly jobless claims data continue to reflect a challenging employment environment. There were 570,000 new unemployment claims, down 10,000 from the previous week but slightly higher than expectations. Continuing claims fell by 121,000 to 6.133 million. However, the downward trend of continuing claims should not be confused with a strengthening of the labor market. Jobs are not plentiful and the drop-off is due to workers losing their unemployment benefits.
August consumer confidence rose to 54.1 from 47.4, which was well above the 47.9 consumer confidence. Likewise, the revised University of Michigan consumer sentiment survey for august came in at 65.7, ahead of the 64.3 consensus.
Finally, the June personal income and spending report illustrated the weak economic conditions. Income was flat after falling 1.1% in June, worse then the expected rise of 0.1%. Meanwhile, real personal spending rose 0.2%, in-line with expectation. The gain was primarily due to the jump in auto sales due to the Cash for Clunkers package.
Asia
Nikkei hits 11 month high on post election sentiment, short covering, strong output data, but drops near close.
China, HK shares closing down, ending rough August on fears of Chinese credit tightening.
In sum, Asian markets headed lower Monday, with Chinese shares tumbling over 5 percent and Japanese stocks fluctuating after the country's opposition party came to power in a landslide victory.
China, HK shares closing down, ending rough August on fears of Chinese credit tightening.
In sum, Asian markets headed lower Monday, with Chinese shares tumbling over 5 percent and Japanese stocks fluctuating after the country's opposition party came to power in a landslide victory.
Global Stock Market Results Friday, Monday Morning
COMMODITIES: price risk ahead appears tilted to the upside, especially in industrial metals and energy. This is because these two groups of products are closely linked to industrial production and economic growth
Oil: prices fell to near $72 a barrel Monday in Asia as China's stock market tumbled and commodities investors questioned whether the U.S. economy can recover strongly in the second half.
Tumbling Asian stock markets, led by a 5.4 percent fall in China's benchmark, provided a negative cue for crude. Oil investors often look to stock markets as a barometer of sentiment about the economy.
Oil has traded near $70 a barrel for most of the last few months as investors struggle to gauge how robust the U.S. recovery will be. Crude has tried and failed several times, including last week, to break through the $75 level.
"Oil looks a little tired," said Christoffer Moltke-Leth, head of sales for Saxo Capital Markets in Singapore. "We're seeing an economic recovery, but that's already been built into the price."
The U.S. economy will likely have to grow at least 2 percent in the third quarter to enthuse traders and push the oil price past $75, Moltke-Leth said.
Investors will be eyeing the U.S. unemployment report on Friday as a key indicator of the economy's health. A high unemployment rate this year has undermined consumer confidence and hurt crude demand.
Oil could drift lower to near $65 a barrel during the next month on investor concerns the current economic recovery isn't sustainable, Moltke-Leth said.
"We could see another dip next year when the fiscal stimulus starts to fade," he said. "The consumer is still being careful."
Gold :held steady near $955 an ounce on Monday on a weaker dollar and firm oil prices, after retreating from an earlier peak near a three-week high marked late last week. Trading has largely been confined to a range of $930 to $960 during the past three months, with gold pressured by a resurgent dollar but underpinned by inflation worries and uncertainty about the economy.
"$960 is the resistance level we have been seeing since the latter half of August, and gold remains technically vulnerable around that level," said Shuji Sugata, a manager at Tokyo's Mitsubishi Corporation Futures & Securities.
Currencies: The Yen supplied a strong start for this busy week, with significant gains following the general elections. Canadian GDP and European CPI Flash Estimate are the highlights of today. [SEE WEEKLY PREVIEW FOR FULL DETAILS]
Japan's watershed election over the weekend is followed by a UK bank holiday today. On the data front we have the August PMI numbers - including the closely watched Chinese manufacturing PMI on Tuesday - around the middle of the week and the important US non- farm payrolls due on Friday. In between, there's the ECB meeting, and the week will end with the long Labour Day weekend in the US.
--
The Democratic Party of Japan has won the election, unseating the long-standing LDP government with a landslide victory amassing around 320 lower house seats and relegating the LDP to around 100 seats. The questions that lingers now is if the DPJ could deliver their lofty election promises and what the results means for Japan's policies, including foreign relations and FX policies.
The G20 finance ministers are meeting on September 4-5, ahead of the G20 summit September 24-25. Secretary Geithner is scheduled to attend.
Officials from China's sovereign wealth fund manager CIC revealed over the weekend that it invested only $4.6bn in foreign assets last year, while holding most of its investment in cash. They have however picked up the pace, investing around that amount every month this year, reinvesting the profits they have generated domestically and at the same time recycling some off the large current account surpluses through capital outflows. Significantly US assets are not off the radar despite the concerns over the USD.
USD - USD recovers Friday on Univ. of Michigan confidence numbers. We expect improvements across the ISM and PMI releases Monday & Tuesday, and look for any further details on the future of the mortgage purchase program and other stimulus from Wednesdays' Fed minutes, crude inventories and ADP payroll will provide further hints as markets await Friday's change in non farm payrolls, forecasted to beat last month's -247K with a reading between -215 to 223K.
EUR - In the Eurozone, the key event will be the interest rate decision on Thursday. Most believe the 1% rate will remain. The EUR/USD was unchanged over last week, trading in a tight range. Local news likely to be overwhelmed by overall risk sentiment, especially from the US news, climaxing in the US Non Farms Payrolls change data on Friday.
European CPI Flash Estimate is expected to drop in an annually adjusted rate of 0.4%, less than last month’s fall. Deflation is hurting EUR/USD. Signs of hope in this field were seen last week in the German Prelim CPI.
Otherwise, CPI is expected to improve slightly to -0.3%y/y from -0.6% previously, easing further deflation fears in the currency union. Eurozone GDP is also expected to be confirmed at -0.1%y/y for a -4.7% annualized print. Germany will release manufacturing PMI, which may edge close to the 50 level.
We expect the EUR to remain under pressure should risk appetite turn.
JPY - The yen hit a seven-week peak against the dollar on Monday as short-term players chased it higher following a thumping win for the opposition Democratic Party in Japan's election, breaking chart supports for the greenback. The yen edged up after the landslide election victory on Sunday, and then gathered pace as automatic dollar sell orders were triggered close to 93.00 yen per dollar, "Shanghai being down 5 percent has muddied the picture as well as to whether it's a reaction to the election victory or risk aversion. It's probably a bit of a combination of both." traders said.
Falling Chinese shares also prompted investors to buy the yen and sell other currencies perceived as risky, including higher-yielding Australian dollar.
"There were a few stale longs liquidated this morning, with dollar/yen and euro/yen selling," said a senior trader at a European bank in Hong Kong.
The opposition DPJ Party won about 75% of the Lower House seats. The USD/JPY could be hurt if the DPJ acts on its intentions to increase government spending and debt (could increase JPY interest rates) and to reduce US bond purchases.
Japan’s Prelim Industrial Production surprised and rose by 1.8% instead of 1.4% that was expected. Also Retail Sales did well and fell by “only” 2.5%, less than 3.3% that was expected.
Later in Japan, Average Cash Earnings are predicted to fall by 6.3%. BOJ Governor Masaaki Shirakawa will talk later on, very close to the release of election results. Japan’s opposition won a landslide victory over the ruling party. The Japanese Yen is now rallying - USD/JPY now trades at 91.59.
CHF – Tuesday's GDP, and PMI data are the main events for the week. Likely to benefit from stocks pullback, though it progressed against most majors this past week. USD/CHF at bottom of 3 month range. Long term bias appears up, but could play either direction short term.
Swiss National Bank will continue its expansionary policy and will stick to unconventional measures. Interest rates will remain low and the Bank will continue to prevent gains in the CHF. There is caution on the economic outlook as unemployment could increase to 6% on average in 2010.
AUD - US & Global stock news likely to overwhelm local news, since this has been trading mostly on risk sentiment.The RBA decision and Q2 GDP are due on Tuesday and Wednesday respectively. Among other releases, building approvals due on Tuesday are likely to show further improvement while the trade deficit is expected to widen.
Our economists believe broad-based resilience across various components means that another positive print is likely for Q2 GDP and forecast 0.5% q/q, with the risks lying to the upside.
The cash rate will likely be left on-hold, but the RBA's statement will be closely watched for any hints that the RBA is eyeing a pre-Christmas rate hike.
NZD – Like the AUD, US & Global stock news likely to overwhelm local news, since this has been trading mostly on risk sentiment Monday's NBNZ Business Confidence is the main NZD news this week, 34.2 expected vs. 18.7 prior.
CAD - Better than expected Retail Sales helped the loonie advance below 1.08, but the break was false, under the low forex volume in summer. This week’s events are scattered unevenly, but are very important:. These include: Monday: GDP, Friday: Employment Change, Unemployment Rate, Ivey PMI. American releases will dominate USD/CAD during Tuesday, Wednesday and Thursday, when nothing is released from Canada.
The pair will shake during Friday, when both countries release the all-important employment figures.
Summary: Stocks continue to focus on positive, pulling other risk assets along, but with a weak recovery already priced in, many believe the next significant move may be down as asset prices appear high relative to growth prospects over the coming year. Low stock market trading volume suggests that the big money does not believe risk assets are a good value.
WHY: Willingness to focus on positive, downplay much existing negative news.
Trading Opportunities: 1. Be prepared to play a pullback in risk assets by selling 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. Always use sell stop orders.
Over the longer term Be cautious about the rebound in global asset markets and keep risk-averse bias: i.e. be ready to go long USD, JPY, CHF against other majors, short risk currencies, stock indexes, and commodities. Thus those holding safe haven assets like USD are likely to get better levels to sell later in the year. Also, keep in mind that at least for the next year or so, the US will not likely be alone in running sizable budget deficits ( When spending is greater than government income). Both the GDP and JPY also have heavy debt burdens. For the US, Monitor employment and confidence because consumer spending makes up about 70 percent of U.S. economic activity. News this week could influence direction depending on the outcome so intraday investors want to watch fundamentals while monitoring technical aspects.
Today’s Major Calendar Events (GMT) * = Main Event
Oil: prices fell to near $72 a barrel Monday in Asia as China's stock market tumbled and commodities investors questioned whether the U.S. economy can recover strongly in the second half.
Tumbling Asian stock markets, led by a 5.4 percent fall in China's benchmark, provided a negative cue for crude. Oil investors often look to stock markets as a barometer of sentiment about the economy.
Oil has traded near $70 a barrel for most of the last few months as investors struggle to gauge how robust the U.S. recovery will be. Crude has tried and failed several times, including last week, to break through the $75 level.
"Oil looks a little tired," said Christoffer Moltke-Leth, head of sales for Saxo Capital Markets in Singapore. "We're seeing an economic recovery, but that's already been built into the price."
The U.S. economy will likely have to grow at least 2 percent in the third quarter to enthuse traders and push the oil price past $75, Moltke-Leth said.
Investors will be eyeing the U.S. unemployment report on Friday as a key indicator of the economy's health. A high unemployment rate this year has undermined consumer confidence and hurt crude demand.
Oil could drift lower to near $65 a barrel during the next month on investor concerns the current economic recovery isn't sustainable, Moltke-Leth said.
"We could see another dip next year when the fiscal stimulus starts to fade," he said. "The consumer is still being careful."
Gold :held steady near $955 an ounce on Monday on a weaker dollar and firm oil prices, after retreating from an earlier peak near a three-week high marked late last week. Trading has largely been confined to a range of $930 to $960 during the past three months, with gold pressured by a resurgent dollar but underpinned by inflation worries and uncertainty about the economy.
"$960 is the resistance level we have been seeing since the latter half of August, and gold remains technically vulnerable around that level," said Shuji Sugata, a manager at Tokyo's Mitsubishi Corporation Futures & Securities.
Currencies: The Yen supplied a strong start for this busy week, with significant gains following the general elections. Canadian GDP and European CPI Flash Estimate are the highlights of today. [SEE WEEKLY PREVIEW FOR FULL DETAILS]
Japan's watershed election over the weekend is followed by a UK bank holiday today. On the data front we have the August PMI numbers - including the closely watched Chinese manufacturing PMI on Tuesday - around the middle of the week and the important US non- farm payrolls due on Friday. In between, there's the ECB meeting, and the week will end with the long Labour Day weekend in the US.
--
The Democratic Party of Japan has won the election, unseating the long-standing LDP government with a landslide victory amassing around 320 lower house seats and relegating the LDP to around 100 seats. The questions that lingers now is if the DPJ could deliver their lofty election promises and what the results means for Japan's policies, including foreign relations and FX policies.
The G20 finance ministers are meeting on September 4-5, ahead of the G20 summit September 24-25. Secretary Geithner is scheduled to attend.
Officials from China's sovereign wealth fund manager CIC revealed over the weekend that it invested only $4.6bn in foreign assets last year, while holding most of its investment in cash. They have however picked up the pace, investing around that amount every month this year, reinvesting the profits they have generated domestically and at the same time recycling some off the large current account surpluses through capital outflows. Significantly US assets are not off the radar despite the concerns over the USD.
USD - USD recovers Friday on Univ. of Michigan confidence numbers. We expect improvements across the ISM and PMI releases Monday & Tuesday, and look for any further details on the future of the mortgage purchase program and other stimulus from Wednesdays' Fed minutes, crude inventories and ADP payroll will provide further hints as markets await Friday's change in non farm payrolls, forecasted to beat last month's -247K with a reading between -215 to 223K.
EUR - In the Eurozone, the key event will be the interest rate decision on Thursday. Most believe the 1% rate will remain. The EUR/USD was unchanged over last week, trading in a tight range. Local news likely to be overwhelmed by overall risk sentiment, especially from the US news, climaxing in the US Non Farms Payrolls change data on Friday.
European CPI Flash Estimate is expected to drop in an annually adjusted rate of 0.4%, less than last month’s fall. Deflation is hurting EUR/USD. Signs of hope in this field were seen last week in the German Prelim CPI.
Otherwise, CPI is expected to improve slightly to -0.3%y/y from -0.6% previously, easing further deflation fears in the currency union. Eurozone GDP is also expected to be confirmed at -0.1%y/y for a -4.7% annualized print. Germany will release manufacturing PMI, which may edge close to the 50 level.
We expect the EUR to remain under pressure should risk appetite turn.
JPY - The yen hit a seven-week peak against the dollar on Monday as short-term players chased it higher following a thumping win for the opposition Democratic Party in Japan's election, breaking chart supports for the greenback. The yen edged up after the landslide election victory on Sunday, and then gathered pace as automatic dollar sell orders were triggered close to 93.00 yen per dollar, "Shanghai being down 5 percent has muddied the picture as well as to whether it's a reaction to the election victory or risk aversion. It's probably a bit of a combination of both." traders said.
Falling Chinese shares also prompted investors to buy the yen and sell other currencies perceived as risky, including higher-yielding Australian dollar.
"There were a few stale longs liquidated this morning, with dollar/yen and euro/yen selling," said a senior trader at a European bank in Hong Kong.
The opposition DPJ Party won about 75% of the Lower House seats. The USD/JPY could be hurt if the DPJ acts on its intentions to increase government spending and debt (could increase JPY interest rates) and to reduce US bond purchases.
Japan’s Prelim Industrial Production surprised and rose by 1.8% instead of 1.4% that was expected. Also Retail Sales did well and fell by “only” 2.5%, less than 3.3% that was expected.
Later in Japan, Average Cash Earnings are predicted to fall by 6.3%. BOJ Governor Masaaki Shirakawa will talk later on, very close to the release of election results. Japan’s opposition won a landslide victory over the ruling party. The Japanese Yen is now rallying - USD/JPY now trades at 91.59.
CHF – Tuesday's GDP, and PMI data are the main events for the week. Likely to benefit from stocks pullback, though it progressed against most majors this past week. USD/CHF at bottom of 3 month range. Long term bias appears up, but could play either direction short term.
Swiss National Bank will continue its expansionary policy and will stick to unconventional measures. Interest rates will remain low and the Bank will continue to prevent gains in the CHF. There is caution on the economic outlook as unemployment could increase to 6% on average in 2010.
AUD - US & Global stock news likely to overwhelm local news, since this has been trading mostly on risk sentiment.The RBA decision and Q2 GDP are due on Tuesday and Wednesday respectively. Among other releases, building approvals due on Tuesday are likely to show further improvement while the trade deficit is expected to widen.
Our economists believe broad-based resilience across various components means that another positive print is likely for Q2 GDP and forecast 0.5% q/q, with the risks lying to the upside.
The cash rate will likely be left on-hold, but the RBA's statement will be closely watched for any hints that the RBA is eyeing a pre-Christmas rate hike.
NZD – Like the AUD, US & Global stock news likely to overwhelm local news, since this has been trading mostly on risk sentiment Monday's NBNZ Business Confidence is the main NZD news this week, 34.2 expected vs. 18.7 prior.
CAD - Better than expected Retail Sales helped the loonie advance below 1.08, but the break was false, under the low forex volume in summer. This week’s events are scattered unevenly, but are very important:. These include: Monday: GDP, Friday: Employment Change, Unemployment Rate, Ivey PMI. American releases will dominate USD/CAD during Tuesday, Wednesday and Thursday, when nothing is released from Canada.
The pair will shake during Friday, when both countries release the all-important employment figures.
Summary: Stocks continue to focus on positive, pulling other risk assets along, but with a weak recovery already priced in, many believe the next significant move may be down as asset prices appear high relative to growth prospects over the coming year. Low stock market trading volume suggests that the big money does not believe risk assets are a good value.
WHY: Willingness to focus on positive, downplay much existing negative news.
Trading Opportunities: 1. Be prepared to play a pullback in risk assets by selling 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. Always use sell stop orders.
Over the longer term Be cautious about the rebound in global asset markets and keep risk-averse bias: i.e. be ready to go long USD, JPY, CHF against other majors, short risk currencies, stock indexes, and commodities. Thus those holding safe haven assets like USD are likely to get better levels to sell later in the year. Also, keep in mind that at least for the next year or so, the US will not likely be alone in running sizable budget deficits ( When spending is greater than government income). Both the GDP and JPY also have heavy debt burdens. For the US, Monitor employment and confidence because consumer spending makes up about 70 percent of U.S. economic activity. News this week could influence direction depending on the outcome so intraday investors want to watch fundamentals while monitoring technical aspects.
Today’s Major Calendar Events (GMT) * = Main Event
DISCLAIMER & DISCLOSURE: THE OPINIONS HEREIN ARE NOT NECESSARILY THOSE OF AVAFX. THE AUTHOR HAS POSITIONS IN THE ABOVE INSTRUMENTS
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