Wednesday, September 2, 2009


- Stocks: Asia mixed, Europe and US down on concerns that stocks are overbought, US financial sector health following AIG's downgrade, and China credit tightening. Tuesday morning Asia down, Europe down
- Other markets follow stocks: commodities down, safety currencies [JPY,USD, CHF in order of safety appeal] generally gain against higher risk currencies [AUD,NZD, CAD, EUR, GBP in order of risk appetite appeal], slight reaction bounce Wednesday morning
- S&P breaks below important 1000 level & up trend line, so does crude oil. Other risk assets near to doing the same
- Main events today:, AUD GDP q/q, GBP construction PMI, EUR revised GDP, USD Leading indicators f/ non-farms payroll: ADP NFP change data, Challenger Gray and Christmas report layoffs last month, Crude oil inventories, factory orders m/m FOMC August 12 meeting minutes


Sentiment of risk aversion overwhelms news. Very good economic news was overwhelmed by the belief that stocks are overbought and that they already reflect that positive economic data prompted participants to make a concerted and broad-based push against stocks. Wednesday brings first leading indicators of Friday's non farms payrolls, with the ADP version and the Challenger Gray and Christmas layoffs report. The market expects continued decrease in job losses, but given the rise in jobless claims last month, either or both reports could prove disappointing and fuel further stock market selling.

Additional factors weighing stocks down included:

· Fresh concerns about the banking sector as AIG was downgraded and the coming G20 meeting threatens new bank regulations & restrictions
· Continued worries about the affects of reduced credit on Chinese growth, which is now considered essential to a global recovery.
· Data from automakers revealed that Asian and not US carmakers were the biggest beneficiaries of the cash for clunkers program. Toyota, Hyundai, Honda and Mazda each saw sales rise more than 10 percent. Chrysler and GM on the other hand reported a 13 and 20 percent drop in car sales respectively. Ford benefitted from the program but that was not enough to offset the disappointments from its peers, who apparently were supplying most of the clunkers while the Asians got Washington's cash.

Tuesday's good news:
ISM Manufacturing Index for August that came in 52.9. Not only was that better than the 50.5 that was expected, but it marked the first time the reading topped 50 since January 2008. A near 10% increase to 64.9 in new orders also proved pleasing. Causes include a weak USD, improving global demand, as was hinted at by the improving regional ISM reports. Given continued job losses, the ISM results clearly indicate that the recovery in the U.S. economy is being driven by the corporate sector.

Pending home sales for July climbed 3.2% to top the 1.5% increase that was widely expected and mark the sixth consecutive month-over-month increase for the tally, as low rates and falling home prices make it a good time to buy—if you have a steady job.

The upbeat reports seemed to support news from The Wall Street Journal that said the International Monetary Fund (IMF) expects the global economy to expand by slightly less than 3% in 2010. The IMF had forecast in July that the global economy would grow by 2.5% during 2010.

Construction spending in July slipped 0.2% month-over-month, which was below the consensus call for 0% growth, but the report didn't receive much attention.

Thus Despite the overall quality of the economic releases, participants quickly turned sides and moved to sell stocks following the data's release. The market's inability to hold the initial gains in the wake of the data suggests that sentiment may be shifting to the downside amid intensifying arguments that the good news is already priced into stocks. In short, if the rally has been a case of "buy on the rumor," Tuesday was "sell on the news."

Asia stocks down following Wall Street, concerns about US banks after AIG downgrade, China credit tightening. Shanghai up after better than expected Chinese lending data, though many see continued weakness near term.


Weakness among stocks again pressured commodities

Following stocks down from nearly $70 to just above $68 despite + US inventory drawdown data Just above $68 in Asia Wednesday morning, down from close to $70 yesterday despite API data showing a sharp drop in crude inventory. Wednesday will bring the more closely watched U.S. Energy Information Administration (EIA) data later in the day could confirm the bullish report from the American Petroleum Institute (API), and further underpin market sentiment.

Reuters reports that sentiment has become a little bit less bullish in recent sessions, because the economic recovery has already been factored into oil prices, and many believe stock prices have gotten ahead of the recovery.

Oil's decline came as economic concerns sent investors scurrying into safer havens like the U.S. dollar, outweighing positive U.S. manufacturing and home sales data.

On the supply front, the Organization of the Petroleum Exporting Countries is likely to leave output targets unchanged when it next meets on Sept. 9 in Vienna. Adding to already high inventories, OPEC has reduced its compliance with agreed production curbs, a Reuters survey on Tuesday found.

OPEC supply in August rose for a fourth consecutive month as Saudi Arabia, Nigeria and Venezuela increased their production, taking overall output discipline to 68 percent of the target from a revised 70 percent in July.

More economic data due later -- August unemployment figures and July factory orders, which are both expected to be positive -- could underscore the U.S. economy's gradual pace of recovery and offer more trading cues.

Gold inched down below $955 on Wednesday after ending higher in the previous session when a decline in stocks prompted investors to buy the precious metal. “It will be a stock, oil and currency markets-driven week, once again,” Jon Nadler, a Kitco Inc. senior analyst in Montreal, said in a report. Economic Forecasts

“Friday’s nonfarm-payrolls report, and today's employment reports should provide further clarity on the world economy and inflation prospects.

Analysts have noted that gold’s inability to close above $958 an ounce is keeping the market’s bias slanted to the downside. With $958 resistance, look for a possible test of the $930-an-ounce to $925-an-ounce support level in the coming week.


General: See Summary. Taking their normal directions from stocks.

USD – Tuesday: At 2 week high against EUR, AUD, CAD, etc, clearly still moving with risk sentiment. Wednesday down slightly

EUR- Down against safer currencies, up against higher yield & commodity currencies, move is reversing slightly in Wednesday morning trade.

JPY - as the #1 safe haven appeal currency, gains against all, slight reaction bounce Wednesday

GBP – See Summary

AUD – See Summary. The big loser Tuesday, moving up slightly Wednesday morning

NZD – See Summary.

CAD – See Summary.


Was Tuesday a one day move or are stocks and other risk assets finally starting the pullback anticipated by so many analysts for so long? Evidence has long suggested the March rally was overdone, but that hasn't stopped the triumph of optimism. Given that September has usually produced losing months for stocks, especially when August was good, we believe the odds are still to the downside, though multi-month support levels may well hold.

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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