Tuesday, September 8, 2009



- Stocks: Monday Asia, Europe up despite overall US jobs data disappointment as Western markets focus on positive, Asia continues up Monday, Tuesday on good China stock market, credit and increased limits on foreign fund investment news

- 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], USD down against all including JPY, CHF

- Main events today: GBP: Manufacturing Production, NEISR GDP Estimate, EUR: German Industrial Production, CAD: Building Permits, Tonight AUD: Home Loans, Retail Sales

- No clear explanation for gold’s sudden move up: Dollar weakness, rising stocks/growth prospects an old story. Why now? It’s a no-confidence vote in the USD, sure, but also for JPY and CHF?



MARKETS CLOSED MONDAY Recap Week ending 04-Sep-09 The US change non farms payrolls report, the week’s key event, 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.

Given the good start to Tuesday trading in Asia and Europe, the US is likely to open higher as well and, given the lack of US economic news, may well take its direction from overseas.




Asia up, following Europe, India. Japan's Nikkei stock average rose 0.7 percent on Tuesday, with Showa Shell Sekiyu rising on plans to build a new solar cell plant, but gains were limited as the yen's firmness weighed on exporters. Nikkei drifts from support at 10,000 to 10,400 resistance. While many traders are encouraged, others said the Nikkei remained overdue for a correction and was doing well considering the yen’s advance against the USD to 93


Europe stock index futures point to higher start.




NIKKEI +1.31%

HS +1.53%

SSEC +0.68%

FTSTI +0.81%

BSESN +2.09%


FTSE +1.68%

DAX +1.47%

CAC +1.50%

US- UP Friday

DOW JONES +1.03%

S&P +1.31%

NASDAQ +1.79

Closed Monday



NIKKEI +0.70 %

HS +2.00 %

SSEC +1.71 %

FTSTI +0.28 %

BSESN +1.07 %



FTSE +0.62 %

DAX +0.38%

CAC +0.38 %


Crude moving up a bit above $68, gold continues climb, futures breach key $1000 resistance.


Oil rises above $68 ahead of OPEC, inventory data, investors sidelined ahead of OPEC meeting and the delayed US inventory data eyed later in week. Most analysts expect the producer group, the source of more than a third of the world's oil supply, to maintain its official output target stable around $70. Some analysts believe that over-production and high supply levels will reduce oil prices in the near term, with oil remaining in the lower end of its $75-$65 range.

Delayed a day by the US Monday holiday, US oil inventory data from the API will come out Wed. and from the EIA on Thursday. Distillate stocks, still quite high will be watched closely as an indicator of short term demand.


U.S. gold futures hit a six-month high of $1,000 and spot gold also rose to six-month high on Tuesday.

Our analysis: analysts are divided and appear unclear on the cause of the sudden rise. Reasons given include

· The USD’s weakness: nothing new, so this doesn’t explain the sudden move

· Concerns about the sustainability of the global economic recovery and worries about inflation: These are contradictory reasons. Recovery would feed inflation, so worries about recovery would ease inflation concerns and weaken demand for gold

Gold demand rises on fear of loss of currency purchasing power, implying either belief in recovery fueled inflation OR some other cause for a major decline in purchasing power of currencies, especially of the USD in which gold is priced. That may well be the reason, but why the sudden move now? What changed? No one seems to know at this time.

The only likely conclusion is that the rise in gold suggests fear driven lack of confidence in any safe haven currencies, not just the USD in which gold is priced but also in the JPY and CHF, neither of which has seen major movement along with gold.

Note that spot gold prices do not always follow futures prices Futures have topped $1,000 nine times -- three times this

year and six last year, including a record $1,033.90. Spot prices have risen above $1,000 just four times - once in February and

three times in March 2008, when they hit a record $1,030.80.


General: Following stocks, Monday FX trade shows risk currencies trading generally higher against safer ones, but JPY gains against USD. Risk bias continues into Tuesday Asian FX trade.

The yen rose broadly on Tuesday, while growth-linked currencies like the Australian and New Zealand dollars paused near one-year highs as investors trimmed buying positions. Investor appetite towards riskier assets including those higher-yielding currencies was slowed as Chinese shares opened down and dragged Tokyo shares lower into negative territory. Overall bias to risk currencies over the safe haven JPY, USD, and CHF remains.

USD – USD losing against all majors, including the other safe haven currencies, the JPY and CHF, as rising stocks undermine safe haven currencies and rising gold undermines the USD in which it is priced.

EUR- The euro traded near a one-week high against the dollar as factory orders in Germany rose in July 3.5% vs. 2.5% forecasted, adding to signs the recession is abating in Europe’s largest economy. This outweighed a worse than expected Sentix Investor confidence report result of -14.5 vs. -13.5 expected. Also helping, Tuesday’s reported German Trade Balance was a better 12.4B vs. 11.2B forecasted.

JPY - Yen stronger as investors trim longs in Aussie, kiwi, also gaining Monday & Tuesday against the USD

GBP – Moving up Tuesday against the USD despite latest UK retail data showing -0.1% change in British Retail Consortium same store sales for August vs. +1.8% for July. Down against the EUR, not surprising given the positive German factory output data Monday and Today’s German Trade Balance data.

AUD –Fell in Tuesday Asia trade despite data showing Australia's business confidence hit a six-year high in August, as traders continued to cut Aussie long positions against the yen. But the strong data added to mounting speculation that local rates will rise in coming months, providing overall support to the Aussie.

NZD – The kiwi edged lower in Tuesday Asia trade to $0.6921 after jumping over 0.8 percent on Monday to hit a one-year high of $0.6935. The gains come ahead of a Reserve Bank of New Zealand meeting on Thursday to decide on monetary policy.

The recent surge in the kiwi could be a focus of Governor Alan Bollard, who has expressed his discomfort with its rise. The kiwi has rallied 30 percent since March, forcing monetary conditions to tighten to the frustration of the RBNZ which threatened to cut interest rates at its last meeting in July.

CAD No major moves Monday with the Labor Day holiday, but new building permits data due 13:30 GMT may cause movement. Tuesday moving up against lower risk currencies like the USD and EUR


Most markets range trading due to lack of news, but the reason for gold’s sudden move is the biggest unanswered question at this time. Major USD weakness another clear theme, as is AUD strength.

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.



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