SUMMARY
- Stocks: Friday Asia, Europe US up despite overall US jobs data disappointment as Western markets focus on positive, Asia up Friday on good China stock market, credit news
- Following stocks, safety currencies [JPY,USD, CHF in order of safety appeal] drop vs. higher risk currencies [AUD,NZD, CAD, EUR, GBP in order of risk appetite appeal], w/ EURUSD, USDJPY, GBPUSD, AUDUSD ALL UP, USDCAD DOWN
- Main events today: US & Canadian Labor Day Holiday (quiet low volume day) GBP Halifax HPI, EUR Sentix Investor Confidence, German Factory orders
STOCKS
US
U.S. stocks closed higher on Friday as investors focused on the bright side of a mixed payrolls report that showed smaller than expected job cuts(-216,000 vs. the -230,000 consensus) in August, though a higher than expected unemployment rate of 9.7% (vs. 9.5% forecasted) and downward revisions for nonfarm payrolls in June and July. Together, these negative factors more than offset a slightly better-than-expected number in August nonfarm payrolls to show an overall worse than expected jobs picture.
Despite the otherwise bad news, the market trended higher Friday and logged a gain of 1.3%. Perhaps investors have already reverted back to focusing on only the positive aspects of economic data, namely the upward trend in nonfarm payrolls (August brought the smallest job loss since August 2008), but it's difficult to say when taking into account that trading volume was remarkably light Friday ahead of the Labor Day weekend.
In the end, the major indices closed the week with declines ranging from -0.5% to -1.6%. Nine of the ten sectors that make up the S&P 500 fell, led by Financials (-3.59%). Consumer Staples was the only sector in the black (+0.56%).
Following modest declines on Monday, presaged by a 6.7% plunge in China's Shanghai Composite on continued liquidity concerns, the major indices began the month of September, historically the worst for stocks, slightly higher. At 10:00ET Tuesday economic data showed that ISM Manufacturing returned to the expansion stage -- which Chicago PMI had done the day before -- with a better-than-expected reading of 52.9 in August (consensus 50.5). Pending Home Sales also came in positive for a sixth consecutive month, rising 3.2% in July (consensus 1.5%).
The market, however, failed to react strongly (unlike prior weeks), and that led to selling pressure as the non-response was interpreted as a confirmation that the good news was already priced into the market and was viewed as another sign of the rally being exhausted. The S&P dropped 20 points between 10:30ET and 11:30ET, closing with a decline of 2.2%.
The Financial sector saw the most severe declines Tuesday, causing some to make the point that the selling was the byproduct of rumors of a dilutive secondary offering made the rounds, but these proved untrue as the company came out just before the close to announce it intended to repay the TARP funds it borrowed without raising equity.
After some consolidative trade over most of the next two sessions -- which included investors shrugging off Initial Claims and ADP data ahead of Friday's employment report -- the major indices staged a late recovery on Thursday as investors covered their short positions in front of the August employment report.
The data in the employment report was less than desirable, as a weaker-than-expected unemployment rate of 9.7% (consensus 9.5%) and downward revisions for nonfarm payrolls in June and July more than offset a slightly better-than-expected number in August nonfarm payrolls (-216,000 vs. the -230,000 consensus).
Despite the otherwise bad news, the market trended higher Friday and logged a gain of 1.3%. Perhaps investors have already reverted back to focusing on only the positive aspects of economic data, namely the upward trend in nonfarm payrolls (August brought the smallest job loss since August 2008), but it's difficult to say when taking into account that trading volume was remarkably light Friday ahead of the Labor Day weekend.
Things may clear up during the coming week's holiday-shortened activity, although there is very little on the economic calendar other than the Federal Reserve's Beige Book on Wednesday, Sept. 9, and the weekly Initial Claims data on Thursday, Sept. 10.
Treasury auctions may return to the forefront. After $38 billion in 3-year Notes on Tuesday, Sept. 8, there is a $20 billion 10-year Note offering reopening on Wednesday and a $12 billion 30-year Bond offering reopening on Thursday.
Wall Street's mettle will be tested next week as traders return from summer to resurfacing signs of weakness after a six-month rally for stocks. Stronger downside volume is not an encouraging sign as it may signal investors are becoming more convincingly bearish.
Asia
HONG KONG/SHANGHAI, Sept 4 (Reuters) - Hong Kong shares jumped 2.8 percent on Friday to post their biggest single-day gain in six weeks, after China hiked the limit for stock investments by foreign funds in a show of support for the market.
China stocks rose 0.6 percent ahead of the announcement, rising for a fourth straight day with bank stocks mixed after regulators softened draft rules on banks' capital base that had previously hit the sector.
Asian shares up Monday following US markets rise.
FRI. GLOBAL MARKETS RESULTS
ASIA- UP NIKKEI -0.27% HS +2.82% SSEC +0.58% FTSTI +0..94% BSESN +1.89%
EUROPE - UP FTSE +1.15% DAX +1.57% CAC +1.27%
US- UP DOW JONES +1.03% S&P +1.31% NASDAQ +1.79
ASIA MON. UP
NIKKEI +1.37% HS + 1.37% SSEC +1.64% FTSTI +0.06% BSESN +1.15%
EUROPE MON.
Open expected up
COMMODITIES
Oil
Oil prices hovered near $68 a barrel Friday, drop below it Monday: Oil prices fell below $68 a barrel on Monday on concerns that high unemployment in the United States, the world's top energy consumer, will weigh on demand. But analysts said a weak U.S. dollar, combined with a firm equities market, would help limit oil's decline.
Russian oil output hit a record high in August, nearing 10 million barrels per day as the country launched a new giant field. This week OPEC is likely to keep output targets steady when it meets Sept. 9, a Kuwaiti OPEC delegate said. As noted in past days, a number of OPEC members have been producing above their quotas, further undermining crude prices.
End of US Summer Driving Season. The US, which consumes about 25% of world oil production, ends its traditionally higher demand summer season with the Labor Day holiday: "As the long Labor Day weeked comes to an end, we're looking at the end of peak gasoline demand season in the U.S, which means we're now entering a period of slack seasonal demand with refineries scaling back their production," said Toby Hassall, a commodities analyst at CWA Global Markets in Sydney.
"High unemployment in the U.S. also underscores the weakness we're seeing in the consumer sector, which will put a handbrake on the overall recovery in energy demand even as we see industrial demand recovering." (Reuters)
Gold
Gold futures in early Monday Asia trade dipped a touch but still hovered just below $1,000 on Monday in buying linked to a weaker dollar and fears about inflation.
Gold shifts role as inflation hedge to safe haven on concerns about inflation or stock pullback. Over the past months, Gold has closely followed the direction of stocks, as improving growth prospects fed inflation fears. Over the past days, however, rising anxiety over stocks has created new demand for gold as a safe store of value in place of stocks and cash. Over the past year, gold has typically moved up concerns of either inflation (when good economic news came out) or financial collapse (when very bad news came out). Gold started to make its latest run higher Wednesday immediately after the disappointing ADP non farms payroll news came out. That data does not suggest impending inflation. So is the gold rally suggesting fading confidence in the recovery, the USD, or both? It was a low volume climb, nonetheless it has held.
CURRENCIES
General: Following stocks, safety currencies [JPY,USD, CHF in order of safety appeal] dropped Friday vs. higher risk currencies [AUD,NZD, CAD, EUR, GBP in order of risk appetite appeal], w/ EURUSD, USDJPY, GBPUSD, AUDUSD ALL UP, USDCAD DOWN, as stock markets again focused on the positive aspects of a mixed US jobs report which showed job losses slowing but overall official unemployment at a 26 year high of 9.7%.Low volume trade is expected Monday with the US and Canada on Labor Day Holiday and very little news due out.
NB SEE WEEKLY ANALYSIS FOR MORE PREVIEW & REVIEW OF ALL MAJOR CURRENCIES. Monday is a very quiet news day, early Morning Asia trade shows little movement.
USD – With stocks up, the USD has played its expected role and has lost ground against higher risk currencies, i.e. everything except the JPY. Markets closed Monday for Labor Day.
EUR- With stocks up, gaining against the safety currencies, losing against the riskier ones. With both Sentix Investor Confidence and German Factory orders, one of the few currencies with any news of note.
JPY - With stocks up, the JPY has played its expected role and has lost ground against most everything else. No major news today.
GBP – With stocks up, gaining against the safety currencies, losing against the riskier ones. No news Monday
AUD – Moving up with rising stocks and risk appetite. Construction and job advertisement volume out, tied with EUR for most news today
NZD – Like the AUD, moving up against most majors with rising stocks and risk appetite. No news Monday.
CAD – Markets also closed for Labor Day, no news due. Gained against safer-haven currencies Friday.
Conclusions
Friday's US jobs reports showed the markets once again were able to focus on the positive despite plenty of negative. We continue to view most markets as overbought compared to growth prospects. Ongoing failure to resolve the root causes of the current slowdown – weakness in the financial sector and employment, strengthens our belief that the next move is likely to be down, though markets have been resilient thus far despite plenty of discouraging news, so further rally can't be ruled out. Not rational? So What? In the words of Keynes: "Markets can stay irrational longer than you can stay solvent."
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. NB: Low volume trade expected today can produce both unpredictable moves and also quiet, directionless trading. Traders should exercise caution, could be a tough day to make money.
Today’s Major Calendar Events (GMT) * = Main Event
TIME CURRENCY EVENT ACTUAL FORECASTED EXPECTED
12:30am AUD AIG Construction Index 42.4 39.5
2:30am AUD ANZ Job Advertisements m/m 4.1% -1.7%
9:30am EUR Sentix Investor Confidence -13.5 -17.0
11:00am EUR German Factory Orders m/m 2.0% 4.5%
All Day CAD Bank Holiday
All Day USD Bank Holiday
OTHER HEADLINES (www.seekingalpha.com)
More Support for Bullish Gold
Higher Interest Rates: Not a Question of 'If' but 'When'
Market Still Giving Benefit of Doubt to Recovery's Next Phase
Eyes on ChinaChina to Buy Up to $50 Billion in IMF SDRs
China's Stock Market: The A vs. H Premium
The Shanghai Market Calls the Tune
Did Chinese Government Stimulus Drive the Latest Rally?
Is a Crash Impending?
UNG Trading 101
Another Natural Gas Bull Sticks His Neck Out
China Urges Citizens to Buy Gold and Silver
Money Supply: The Myth of Hyperinflation
DISCLOSURE AND DISCLAIMER: OPINIONS EXPRESSED ARE NOT NECESSARILY THOSE OF AVAFX, AUTHOR HAS POSITIONS IN ABOVE INSTRUMENTS
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